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dismissing wrongful foreclosure claim against trustee based entirely on its initiation of nonjudicial foreclosure at bank's direction, and discussing similar cases
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CIV. NO. 2:16-00636 WBS KJN
07-13-2016
PAUL SCHRUPP, Plaintiff, v. WELLS FARGO BANK, N.A.; NDEX WEST, LLC; and DOES 1-20, inclusive, Defendants.
MEMORANDUM AND ORDER RE: MOTION TO DISMISS
Plaintiff Paul Schrupp initiated this action against defendants Wells Fargo Bank, N.A. ("Wells Fargo") and NDEX West, LLC, alleging several causes of action based upon Wells Fargo's failure to provide plaintiff a permanent loan modification prior to foreclosing on his property. Presently before the court is Wells Fargo's motion to dismiss plaintiff's Complaint for failure to state a claim upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). (Docket No. 6.) Defendant NDEX West, LLC, the agent for the beneficiary and trustee under the deed of trust against plaintiff's home, joins Wells Fargo's motion to dismiss. (Docket No. 7.)
I. Factual and Procedural History
On December 12, 2005, plaintiff borrowed $520,000 from World Savings Bank secured by a deed of trust on his home. (Req. for Judicial Notice ("RJN") Ex. A (Docket No. 6-1).) World Savings Bank later changed its name to Wachovia Mortgage, FSB before eventually becoming Wells Fargo Bank, N.A. (Id. Ex. F.) Plaintiff defaulted on his loan in December 2009 and Wells Fargo caused a Notice of Default to be recorded in the Yolo County Recorder's Office on March 26, 2010. (Id. Ex. G.)
On August 10, 2010, plaintiff filed a Chapter 13 bankruptcy petition in the Eastern District of California bankruptcy court. (Id. Ex. H.) The bankruptcy court confirmed plaintiff's Chapter 13 plan on February 2, 2011, requiring plaintiff to pay monthly installments of $2,899.24 to Wells Fargo. (Id. Ex. I.)
In May 2011, Wells Fargo invited plaintiff to participate in a Home Affordable Modification Program ("HAMP") Trial Period Plan ("TPP"), promising to offer plaintiff a permanent loan modification if he made three timely monthly payments of $1,500.01 and submitted the required documents. (Id. Ex. J.) The bankruptcy court approved plaintiff's trial loan modification with Wells Fargo on June 21, 2011. (Id. Ex. O.) The bankruptcy court noted, however, that it was approving the trial modification despite plaintiff's failure to comply with the requirements of the Federal Rules of Bankruptcy Procedure and that plaintiff would be "well served to ensure that future filings comply." (Id.) Plaintiff alleges he began making the modified trial payments on May 26, 2011. (Id. Ex. L.)
On June 23, 2011, plaintiff moved to confirm his modified Chapter 13 plan, which incorporated the terms of Wells Fargo's loan modification. (Id. Ex. K.) On August 2, 2011, however, the bankruptcy court denied plaintiff's motion to confirm the modified plan without prejudice due to plaintiff's procedural errors. (Id.) The bankruptcy court found that plaintiff had "failed to meet the burden of proving the requirements of confirmation" and explained the type of evidence that a debtor must submit. (Id.)
Plaintiff defaulted on his bankruptcy payment plan and the bankruptcy trustee filed a motion to dismiss the bankruptcy case on October 13, 2011. (Id. Ex. L.) On November 23, 2011, the bankruptcy court found that plaintiff had failed to cure the default and dismissed the case. (Id.)
Plaintiff alleges that he made the three trial payments and continued to make modified payments of $1,500.01 to Wells Fargo for two months after the bankruptcy court denied his amended Chapter 13 plan and two more months after his bankruptcy case was dismissed. (Compl. ¶ 25; see also RJN Ex. L.) Wells Fargo accepted these payments until January 20, 2012, when a branch employee allegedly refused to accept the payment. (Compl. ¶ 25.) Plaintiff alleges that Wells Fargo gave him contradictory information over the next several years--first informing him that it would investigate and correct the error the branch employee made when he or she refused to accept payment, later refusing to correct the error, and then again agreeing to correct the error. (Id. ¶ 26.) Wells Fargo later refused to communicate with plaintiff because he was represented by counsel. (Id. ¶ 27.) Throughout this time, Wells Fargo sent monthly mortgage statements to plaintiff demanding the higher amount due under the original mortgage. (Id. ¶ 29.)
On November 10, 2015, NDEX West, LLC, at the direction of Wells Fargo, recorded a notice of trustee's sale. (Id. ¶ 30.) NDEX West, LLC conducted a foreclosure sale of plaintiff's home on December 3, 2015 and Wells Fargo took title to the property. (Id. ¶ 31; Wells Fargo's Mot. to Dismiss ("Mot. to Dismiss") at 3 (Docket No. 6).) Plaintiff owed $722,059.93 on his loan at the time of the foreclosure sale. (RJN Ex. M.)
Plaintiff alleges five causes of action against Wells Fargo for: 1) breach of contract; 2) promissory estoppel; 3) violations of California's Rosenthal Fair Debt Collection Practices Act ("Rosenthal Act"), Cal. Civ. Code § 1788; 4) violations of the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. § 1691(d); and 5) violations of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et seq. Plaintiff also asserts a wrongful foreclosure claim against both Wells Fargo and NDEX West, LLC. Plaintiff seeks to set aside the foreclosure sale, specific performance of the alleged contractual obligations, statutory damages, actual damages, restitution, and attorney's fees. (Compl. at 13-14.)
II. Legal Standard
A. Motion To Dismiss
On a motion to dismiss under Rule 12(b)(6), 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 must 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 557).
"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions . . . ." Twombly, 550 U.S. at 555 (alteration in original) (citations omitted). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Iqbal, 556 U.S. at 678; see also Iqbal, 556 U.S. at 679 ("While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.").
B. 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; see Castillo-Villagra v. INS, 972 F.2d 1017, 1026 (9th Cir. 1992). Plaintiff does not oppose Wells Fargo's requests for judicial notice.
The court will thus take judicial notice of the documents related to the deed of trust, notice of default, and the trustee's sale in exhibits A, G, M, and N. (RJN Exs. A, G, M, N.) These are publicly recorded documents appropriate for judicial notice. See Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001) (noting that a court may take judicial notice of matters of public record); see also Hopkins v. Wells Fargo Bank, N.A., Civ. No. 2:13-444 WBS JFM, 2013 WL 2253837, at *1 (E.D. Cal. May 22, 2013) (taking judicial notice of a deed of trust, notice of default and election to sell under deed of trust, notice of trustee's sale, and trustee's deed upon sale).
The court will also judicially notice the United States Department of Treasury documents in exhibits B through F related to the charter and certification of World Savings Bank and its renaming as Wells Fargo. (RJN Exs. B-F.) These documents are readily verifiable and undisputed. See Ferguson v. Wells Fargo Bank, N.A., Civ. No. 2:12-2944 WBS GGH, 2013 WL 504709, at *3 (E.D. Cal. Feb. 8, 2013) (taking judicial notice of similar documents reflecting official acts of the executive branch of the United States that were readily verifiable and undisputed).
Finally, the court will take judicial notice of the bankruptcy court documents within exhibits H, J, K, L, O, and P, (RJN Exs. H, J, K, L, O; Suppl. RJN Ex. P (Docket No. 14)), because "the authenticity and existence of a particular order, motion, pleading or judicial proceeding, which is a matter of public record, is judicially noticeable." United States v. S. Cal. Edison Co., 300 F. Supp. 2d 964, 974 (E.D. Cal. 2004); see also Lane v. Vitek Real Estate Indus. Grp., 713 F. Supp. 2d 1092, 1097 (E.D. Cal. 2010) (taking judicial notice of court documents relating to plaintiff's bankruptcy proceedings); Lee, 250 F.3d at 690 (finding a court may take judicial notice of another court's opinion, but not of the truth of the facts recited therein).
III. Discussion
A. Breach of Contract
A claim for breach of contract requires (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) resulting damages to plaintiff. Reichert v. Gen. Ins. Co. of Am., 68 Cal. 2d 822, 830 (1968). Plaintiff alleges that the TPP offered pursuant to HAMP constituted a valid, enforceable contract and Wells Fargo breached by failing to offer plaintiff a permanent modification after he successfully paid the three trial payments. (Pl.'s Opp'n at 3-4 (Docket No. 11).)
The United States Treasury Department started the HAMP program in 2009 in response to the financial crisis to incentivize banks to refinance mortgages of distressed homeowners so they could stay in their homes. Corvello v. Wells Fargo Bank, NA, 728 F.3d 878, 880 (9th Cir. 2013). HAMP aims to assist homeowners who have defaulted or are in imminent danger of defaulting on their home mortgages. Inman v. Suntrust Mortg., Inc., Civ. No. 1:10-1031 AWI GSA, 2010 WL 3516309, at *1 n.2 (E.D. Cal. Sept. 3, 2010).
Eligible borrowers who wish to permanently modify their loan through HAMP must first enter a TPP, which is a period of three or more months during which the borrower must make timely trial payments of the modified amount and provide required documentation to the loan servicer. Reichert, 68 Cal. 2d at 880-81. If the servicer concludes that the borrower is not eligible for HAMP after reviewing the documents submitted or the borrower does not make the required trial payments, the servicer must promptly communicate the ineligibility determination to the borrower in writing. Id. at 881. If the borrower complies with the terms of the TPP, the servicer must offer the borrower a permanent loan modification. Id. Home loan servicers and lenders receive significant financial incentives from the Treasury Department for each permanent modification they make. Id. at 880.
"[A] trial loan modification under HAMP constitutes a valid, enforceable contract under state law, at least at the pleading stage of litigation." West v. JPMorgan Chase Bank, NLA., 214 Cal. App. 4th 780, 799 (4th Dist. 2013) (citing Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 556-57 (7th Cir. 2012)); see also Corvello, 728 F.3d at 883-84 (citing West with approval); Meixner v. Wells Fargo Bank, N.A., 101 F. Supp. 3d 938, 947 (E.D. Cal. Apr. 24, 2015) (Nunley, J.) ("The Ninth Circuit has recently held that, . . . a TPP Agreement offered pursuant to HAMP is a contract, and a party to that contract may sue for breach if the lender violates a term contained within the four corners of the TPP." (citing Corvello, 728 F.3d at 880) (internal quotation marks omitted)). While the modification is not complete until all of the conditions are met, banks are contractually obligated under the terms of the TPP to offer a permanent modification to borrowers who comply with the TPP by submitting accurate documentation and timely making the required trial payments. Corvello, 728 F.3d at 883. The Ninth Circuit has explained that this "interpretation of the TPP avoids the injustice that would result were . . . [banks] allowed to keep borrowers' trial payments without fulfilling any obligations in return." Id . at 884.
In this case, Wells Fargo offered plaintiff a TPP that required plaintiff to make its first monthly trial period payment of $1,550.01 by June 1, 2011 to accept the HAMP modification offer. (RJN Ex. J.) In order to qualify for a permanent modification, the offer required plaintiff to make three timely payments of $1,550.01 by the first of June, July, and August 2011. (Id.) The offer letter notified plaintiff that, "[a]fter all trial period payments are timely made and you have submitted all the required documents, your mortgage would then be permanently modified." (Id.) Accepting the allegations in the Complaint as true, plaintiff made all three trial monthly payments on time. (Compl. ¶ 25.) As a result, plaintiff has sufficiently alleged that he accepted the offered modification and Wells Fargo breached the resulting modification agreement when it failed to provide him a permanent modification.
Wells Fargo disputes that plaintiff made his first payment on time as plaintiff did not seek bankruptcy court approval of the trial modification until June 26, 2011. (Wells Fargo's Reply at 1 (Docket No. 13); RJN Ex. J.) Plaintiff alleges, however, that he made his trial payments on time. (Compl. ¶¶ 25, 35.) Further, he contends that the trustee's notice of default demonstrates he made his first modified payment on May 26, 2011, prior to the June 1, 2011 deadline. (Pl.'s Opp'n at 4; see RJN Ex. L.)
The parties were not precluded from entering into this modified agreement because plaintiff was in Chapter 13 bankruptcy proceedings and already had a confirmed Chapter 13 plan in place requiring monthly mortgage payments of $2,899.24 to Wells Fargo. First, Wells Fargo did not condition the permanent modification on approval by the bankruptcy court or confirmation of an amended Chapter 13 plan. As the drafter of the terms of its offer and, presumably, the more sophisticated party, Wells Fargo cannot now invoke a condition it did not include.
Further, the bankruptcy court approved the trial loan modification and held that plaintiff was "authorized to amend the terms of the loan with Wachovia Mortgage, a division of Wells Fargo Bank, N.A., which is secured by the real property commonly known as 517 D Street, Davis, California, and such other terms as stated in the Trial Modification Agreement." (Suppl. RJN Ex. P; see also RJN Ex. O.) The bankruptcy court therefore implicitly approved the terms of the TPP, including the promise that the loan would be permanently modified if all trial payments were timely made and documents submitted. While the bankruptcy court subsequently denied confirmation of plaintiff's amended Chapter 13 plan, this was because of procedural errors unrelated to the modified loan agreement. (RJN Ex. K.) Lastly, plaintiff's bankruptcy case was dismissed in its entirety in November 2011, releasing the parties from the confirmed Chapter 13 plan and any restrictions the bankruptcy rules may have imposed on them. The bankruptcy proceedings therefore did not prevent the parties from entering into a separate modification agreement.
Accordingly, the court finds plaintiff has adequately alleged that the trial loan modification under HAMP constituted a valid, enforceable contract and Wells Fargo breached that contract by failing to offer plaintiff a permanent loan modification. The court must therefore deny Wells Fargo's motion to dismiss plaintiff's breach of contract claim.
B. Tender Requirement for Equitable Claims
Wells Fargo argues that plaintiff's failure to allege he made a tender of his full outstanding debt precludes any equitable relief. (Mot. to Dismiss at 5.) In California, "[t]ender is required only when foreclosure has already occurred and the plaintiff alleges irregularities in the foreclosure process itself." McGarvey v . JP Morgan Chase Bank, N . A ., Civ. No. 2:13-01099 KJM EFB, 2013 WL 5597148, at *11 (E.D. Cal. Oct. 11, 2013) (finding tender was not required under California law because the plaintiff's promissory estoppel, negligence, and UCL claims did not rely on any irregularities in the foreclosure process); Ohlendorf v . Am . Home Mortg . Servicing, 279 F.R.D. 575, 580 (E.D. Cal. 2010) (finding that an allegation of tender was required only for a cause of action for irregularity in the foreclosure sale procedure, not the plaintiff's claims of negligence, fraud, violation of the Real Estate Settlement Procedures Act, the Rosenthal Act, or the UCL); Nugent v . Fed . Home Loan Mortg . Corp ., Civ. No. 2:12-00091 GEB EFB, 2013 WL 1326425, at *7 (E.D. Cal. Mar. 29, 2013) (finding tender was required because the plaintiffs' claims for wrongful foreclosure were based on irregularities in the sale notice and procedure and no exception to the tender rule applied). The rationale behind the tender requirement is that if the borrower "could not have redeemed the property had the sale procedures been proper, any irregularities in the sale did not result in damages to the [borrower].'" Lona v . Citibank, N . A ., 202 Cal. App. 4th 89, 112 (6th Dist. 2011) (citation omitted).
Plaintiff need not have alleged tender for his promissory estoppel, Rosenthal Act, ECOA, UCL, or wrongful foreclosure claims as they do not challenge any procedural irregularities in the foreclosure process but rather allege Wells Fargo failed to honor its promise to permanently modify his loan, acted in a commercially unreasonable and unfair manner, and lacked authority to foreclose on plaintiff's home when he was not in default under the modified loan agreement.
C. Promissory Estoppel
The elements of promissory estoppel are: "(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance." U.S. Ecology, Inc. v. State, 129 Cal. App. 4th 887, 901 (4th Dist. 2005) (citation and internal quotation marks omitted) (alteration in original); see also Poway Royal Mobilehome Owners Ass'n v. City of Poway, 149 Cal. App. 4th 1460, 1471 (6th Dist. 2007); Diede Constr., Inc. v. Monterey Mech. Co., 125 Cal. App. 4th 380, 385-86 (1st Dist. 2004). "Because promissory estoppel is an equitable doctrine to allow enforcement of a promise that would otherwise be unenforceable, courts are given wide discretion in its application." U.S. Ecology, Inc., 129 Cal. App. 4th at 902 (citing C & K Eng'g Contractors v. Amber Steel Co., 23 Cal. 3d 1, 7-8 (1978)).
As discussed above, plaintiff alleges sufficient facts to put forth a plausible claim that Wells Fargo made a clear promise to plaintiff to offer him a permanent loan modification if he timely made the trial payments and submitted the required documents. Plaintiff also adequately alleges that he relied on this promise by timely making the three trial payments and continuing to pay Wells Fargo the modified amount for several more months. (Compl. ¶¶ 25-28.) Wells Fargo accepted these payments even after plaintiff's modified Chapter 13 plan was rejected and his bankruptcy case dismissed. (Id.) Wells Fargo did not reject the modified payment amount until January 2012 and, even then, allegedly informed plaintiff it would investigate and "correct its error." (Id. ¶¶ 25-26.) These allegations support plaintiff's claim that Wells Fargo made a promise and acted in accordance with this promise.
Lastly, plaintiff sufficiently alleges that he relied to his detriment on Wells Fargo's promise to provide a modification because he forewent other opportunities to avoid foreclosure such as borrowing money to pay the default amount or locating a buyer who would have allowed him to remain in the home in exchange for rent. (Id. ¶ 42); see West, 214 Cal. App. 4th at 805 (finding detrimental reliance where the plaintiffs alleged they lost opportunities, including selling their home or finding a co-signer); cf. Turbeville v. JPMorgan Chase Bank, Civ. No. 8:10-1464 DOC JCG, 2011 WL 7163111, at *5 (C.D. Cal. Apr. 4, 2011) (finding the plaintiffs sufficiently alleged detrimental reliance by stating that they put their money towards TPP trial payments rather than pursuing other avenues of curing their default such as immediate bankruptcy proceedings); Wilcox v. EMC Mortg. Corp., Civ. No. 8:10-1923 DOC JCG, 2011 WL 10065501, at *6 (C.D. Cal. July 25, 2011) (finding detrimental reliance where plaintiffs alleged they put their money towards modified mortgage payments rather than curing their default through bankruptcy, short sales, cashing in on 401(k) funds, or paying other creditors). Plaintiff also alleges he suffered injuries from higher loan balances, late charges, foreclosure related servicing fees, potential income tax liability, and poor credit. (Compl. ¶ 42.)
Despite Wells Fargo's contention that any injury plaintiff suffered was due to plaintiff's own failure to secure an amended Chapter 13 plan incorporating the loan modification, plaintiff has sufficiently alleged that the parties had a valid agreement and plaintiff invested time and money in complying with that agreement rather than pursuing other strategies. Further, even if the TPP did not constitute an enforceable contract, plaintiff could arguably assert a promissory estoppel claim based on Wells Fargo's failure to write that its permanent modification offer was conditioned on bankruptcy court approval of an amended Chapter 13 plan and continued acceptance of plaintiff's modified payments even after the bankruptcy court rejected the amended Chapter 13 plan.
Accordingly, the court will deny Wells Fargo's motion to dismiss plaintiff's promissory estoppel claim.
D. Rosenthal Fair Debt Collection Practices Act
California's Rosenthal Act prohibits debt collectors from engaging in unfair or deceptive practices in the collection of consumer debts. Cal. Civ. Code § 1788.1. As a threshold, the defendant must fall within the Rosenthal Act's definition of "debt collector" in order to be held liable for violating the Act. The Rosenthal Act defines a "debt collector" as "any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection." Id. § 1788.2(c). Foreclosure pursuant to a deed of trust is not debt collection within the meaning of the Rosenthal Act unless it includes "debt collection activities beyond the scope of the ordinary foreclosure process." Walters v. Fid. Mortg. of Cal., 730 F. Supp. 2d 1185, 1203 (E.D. Cal. 2010) (Damrell, J.); Webb v. Bank of Am., N.A., Civ. No. 2:13-2006 MCE AC, 2013 WL 6839501, at *5-6 (E.D. Cal. Dec. 23, 2013).
The Ninth Circuit has recognized that a loan servicer offering a TPP under HAMP with a concomitant demand for trial payments is engaged in debt collection activities beyond the scope of the ordinary foreclosure process and, consequently, a remedy may be available under the Rosenthal Act. Corvello, 728 F.3d at 885 (finding Wells Fargo was a debt collector engaged in debt collection when it offered the plaintiffs a TPP and demanded trial payments); see also Webb, 2013 WL 6839501, at *6 (finding the plaintiff sufficiently alleged the defendant was a debt collector and its debt collection activities fell outside of the normal foreclosure process where the defendant demanded payments not owed under the modification agreement and informed plaintiff she was in default when she was not).
Plaintiff has sufficiently alleged that Wells Fargo engaged in debt collection under the Rosenthal Act by offering plaintiff a TPP, requesting trial payments, and engaging in improper activities servicing the loan by making "false, deceptive, or misleading" statements to plaintiff that if he made the TPP payments it would provide him a permanent loan modification. (Compl. ¶ 49.) Plaintiff also alleges Wells Fargo used unfair or unconscionable means to collect the debt when it attempted to collect on the original amount due under the promissory note rather than the modified agreement and provided mixed messages about whether the rejection of the modified payment in January 2012 was an error. (Id. ¶ 50.) Wells Fargo was therefore engaged in conduct beyond enforcing the original deed of trust. Accordingly, plaintiff has stated a plausible claim under the Rosenthal Act and the court must deny Wells Fargo's motion to dismiss that claim.
E. Equal Credit Opportunity Act
The ECOA prohibits creditors from discriminating against credit applicants "on the basis of race, color, religion, national origin, sex or marital status, or age." 15 U.S.C. § 1681(a)(1). In order to effectuate this goal, the ECOA contains strict notice requirements that provide a basis for a cause of action against creditors even without allegations of discrimination. See Schlegel, 720 F.3d 1204, 1210 (9th Cir. 2013); Errico v. Pac. Capital Bank, N.A., 753 F. Supp. 2d 1034, 1042 (N.D. Cal. 2010) ("[A] procedural violation of the notice provisions of ECOA may provide the basis for a cause of action even without regard to allegations of discrimination." (citing Dufay v. Bank of Am., 94 F.3d 561 (9th Cir. 1996)).
Under the ECOA, when a lender takes an adverse action against an applicant, the applicant is entitled to a statement of reasons for the action or a written notification of the adverse action that discloses the applicant's right to a statement of reasons within thirty days after receipt of the applicant's request. 15 U.S.C. § 1691(d)(2)(A)-(B). Adverse action means "a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested." 15 U.S.C. § 1691(d)(6). The term does not include a "refusal to extend additional credit under an existing credit arrangement where the applicant is delinquent or otherwise in default." Id.; see also 12 C.F.R. § 2 02.2(c)(2)(ii) (providing that the term adverse action does not include "any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account").
The Ninth Circuit has found that termination of a loan modification agreement constitutes an adverse action. Schlegel, 720 F.3d at 1211; see also Vasquez v. Bank of Am., N.A., Civ. No. 3:13-2902 JST, 2013 WL 6001924, at *13 (N.D. Cal. Nov. 12, 2013) (finding a home loan modification request under HAMP constitutes a credit application under ECOA); Cooksey v. Select Portfolio Servicing, Inc., Civ. No. 2:14-1237 KJM KJN, 2014 WL 4662015, at *3 (E.D. Cal. Sept. 18, 2014) (same).
For example, in Schlegel, the plaintiffs fell behind on their mortgage payments, filed a Chapter 7 petition in bankruptcy, and reaffirmed their loan with Wells Fargo. 720 F.3d at 1206. The plaintiffs then obtained a loan modification agreement from Wells Fargo, which was approved by the bankruptcy court, and began making modified monthly payments. Id. Wells Fargo, however, failed to properly record the status of the plaintiffs' loan modification and sent plaintiffs a series of default notices informing them that it would be accelerating the loan and commencing foreclosure proceedings. Id. at 1206-07. The plaintiffs sent Wells Fargo a letter asking it to explain its failure to acknowledge the loan modification and, when Wells Fargo did not respond, the plaintiffs filed suit under the ECOA. Id. at 1207. The Ninth Circuit found that Wells Fargo's default notices constituted adverse actions under the ECOA as they communicated Wells Fargo's refusal to abide by the terms of the loan modification agreement, revoking the prior credit arrangement. Id. at 1211. The Ninth Circuit therefore held that the plaintiffs had sufficiently alleged an ECOA claim as Wells Fargo failed to provide an explanation for this revocation of credit until after the plaintiffs filed their complaint. Id.
Just as in Schlegel, plaintiff defaulted on his loan, entered into Chapter 13 bankruptcy, received an offer from Wells Fargo for a TPP, obtained approval from the bankruptcy court of the trial modification, and began making modified payments. Without providing an explanation and after accepting the modified payment for months, Wells Fargo allegedly refused to accept the modified payment amount in January 2012, thereby revoking the terms of the loan modification agreement. (Compl. ¶¶ 66-69.) Despite Wells Fargo's assertion that the ECOA does not apply because plaintiff was in default, plaintiff has sufficiently alleged that the modified loan agreement cured his prior default and he was current on his payments under the modified loan. Wells Fargo's rejection of payment therefore constituted an "adverse action" for which it failed to provide a written statement of reasons or written notification.
Accordingly, the court must deny Wells Fargo's motion to dismiss plaintiff's ECOA claim.
F. Unfair Competition Law
California's UCL prohibits "any unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. "The UCL's purpose is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services." Kasky v. Nike, Inc., 27 Cal. 4th 939, 949 (2002) (citing Barquis v. Merchs. Collection Ass'n, 7 Cal. 3d 94, 110 (1972)). Under this statute, a prevailing plaintiff is generally limited to injunctive relief and restitution of any interest acquired by means of unfair competition. See Cal. Bus. & Prof. Code § 17203; Cel-Tech Commc'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 179 (1999).
Here, plaintiff alleges that Wells Fargo's conduct was unlawful because it violated the Rosenthal Act and the ECOA; unfair because Wells Fargo promised but failed to provide a permanent loan modification and initiated foreclosure proceedings when plaintiff was current under the modified agreement; and fraudulent in that Wells Fargo promised but failed to provide a permanent modification. (Compl. ¶¶ 72-75.)
Wells Fargo first contends that plaintiff does not have standing to assert a UCL claim. A private person has standing to sue under the UCL if he can "(1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury, and (2) show that that economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim." Kwikset Corp. v. Superior Ct., 51 Cal. 4th 310, 322 (2011). The purpose of the UCL standing requirement is to "eliminate standing for those who have not engaged in any business dealings with would-be defendants and thereby strip such unaffected parties of the ability to file 'shakedown lawsuits,' while preserving for actual victims of deception and other acts of unfair competition the ability to sue and enjoin such practices." Id . at 317.
Plaintiff clearly had a business relationship with Wells Fargo and, as discussed above, has sufficiently alleged injury due to a loss of real property through foreclosure and financial loss due to late charges, foreclosure related servicing fees, potential income tax liability, and poor credit. (Compl. ¶ 42); see Kwikset Corp ., 51 Cal. 4th at 323 (noting there are "innumerable ways in which economic injury" may be shown including surrendering more or acquiring less in a transaction than one otherwise would have, diminishment of a present or future property interest, deprivation of money or property to which one has a cognizable claim, or being required to enter into a transaction costing money or property that would otherwise have been unnecessary).
To establish that the economic injury was the result of an unfair business practice, a plaintiff must show a "causal connection or reliance on the alleged misrepresentation." Kwikset Corp., 216 Cal. App. at 326 (citation and internal quotation marks omitted). A plaintiff is not, however, "'required to allege that [the challenged] misrepresentations were the sole or even the decisive cause of the injury-producing conduct.'" Id . at 327 (citation omitted) (alteration in original). "A plaintiff fails to satisfy the causation prong of the statute if he or she would have suffered 'the same harm whether or not a defendant complied with the law.'" Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal. App. 4th 497, 522 (4th Dist. 2013) (quoting Daro v. Superior Ct., 151 Cal. App. 4th 1079, 1099 (1st Dist. 2007)).
For example, in Jenkins, the court found the plaintiff lacked standing under the UCL because she could not establish a causal link between the foreclosure of her home and the defendant's six unlawful or unfair acts, all of which occurred after the plaintiff defaulted on her loan. Id. at 523. Even if the defendant had not acted unfairly, the plaintiff still would have defaulted and suffered the same economic injury.
Unlike in Jenkins, plaintiff has plausibly alleged that he was not in default under the modified loan agreement and lost his home because of Wells Fargo's misrepresentations regarding a permanent modification and rejection of payment. Accordingly, the court must deny Wells Fargo's motion to dismiss plaintiff's UCL claim for lack of standing.
"Each prong of the UCL is a separate and distinct theory of liability" and offers an "independent basis for relief." Kearns v. Ford Motor Co., 567 F.3d 1120, 1127 (9th Cir. 2009) (citing S. Bay Chevrolet v. Gen. Motors Acceptance Corp., 72 Cal. App. 4th 861 (4th Dist. 1999)). "An action is unlawful under the UCL and independently actionable if it constitutes a violation of another law, 'be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made.'" Cooksey, 2014 WL 4662015, at *7. Given that plaintiff's Complaint sufficiently alleges claims for breach of contract, promissory estoppel, and violations of the Rosenthal Act and the ECOA, it also states a claim under the UCL. See Ramos v. Citimortgage, Inc., Civ. No. 08-02250 WBS KJM, 2009 WL 86744, at *6 (E.D. Cal. Jan. 8, 2009). Accordingly, the court will deny Wells Fargo's motion to dismiss plaintiff's UCL claim.
G. Wrongful Foreclosure
The elements of wrongful foreclosure are: "(1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale suffered prejudice or harm; and (3) the trustor or mortgagor tenders the amount of the secured indebtedness or was excused from tendering. West, 214 Cal. App. 4th at 800. "It is the general rule that courts have power to vacate a foreclosure sale where there has been fraud in the procurement of the foreclosure decree or where the sale has been improperly, unfairly or unlawfully conducted, or is tainted by fraud, or where there has been such a mistake that to allow it to stand would be inequitable to purchaser and parties." Bank of Am. Nat'l Trust & Sav. Ass'n v. Reidy, 15 Cal. 2d 243, 248 (1940).
The first element is satisfied if, for example, "the trustee did not have the power to foreclose" or the "trustor was not in default, no breach had occurred, or the lender had waived the breach." Lona, 202 Cal. App. 4th at 104-05. In Barroso v . Ocwen Loan Servicing, LLC, 208 Cal. App. 4th 1001 (2d Dist. 2012), the court found that the plaintiff had alleged a basis for wrongful foreclosure where the parties had reached an enforceable agreement to modify the plaintiff's loan pursuant to HAMP, the plaintiff timely paid all subsequent payments, and the defendant nonetheless foreclosed. Id . at 1017-18. Similarly, in Bank of America, N . A . v . La Jolla Group II, 129 Cal. App. 4th 706 (5th Dist. 2005), the court found that the foreclosure sale was invalid where the bank accepted the homeowner's tender of his defaulted loan four days prior to when the foreclosure sale was scheduled to take place but the trustee, ignorant of the tender, still proceeded with the foreclosure sale. Id . at 709, 712. The court found that "the trustor and beneficiary entered into an agreement to cure the default" and reinstate the loan and, as a result, no contractual basis remained for exercising the power of sale and "the foreclosure sale was invalid." Id . at 712.
In this case, plaintiff has adequately alleged that he entered into a valid loan modification agreement with Wells Fargo that cured the prior default, he timely made the modified payments, and Wells Fargo nonetheless rejected his January 2012 payment and initiated foreclosure. As in Barroso and Bank of America, N . A ., Wells Fargo lacked contractual authority to reject the modified payment and foreclose. The Complaint therefore contains sufficient facts that the non-judicial foreclosure was conducted illegally and the court must deny Wells Fargo's motion to dismiss plaintiff's wrongful foreclosure claim.
In addition to joining in Wells Fargo's motion to dismiss, NDEX West, LLC also argues that plaintiff's wrongful foreclosure claim against it should be dismissed because, as trustee, it is protected from liability under California Civil Code section 2924(b). (NDEX Joinder at 4 (Docket No. 7).) Section 2924(b), which deals with transfers and sales of deeds of trust, states: "the trustee shall incur no liability for any good faith error resulting from reliance on information provided in good faith by the beneficiary regarding the nature and the amount of the default under the secured obligation, deed of trust, or mortgage." Cal. Civ. Code § 2924(b).
NDEX West, LLC also claims plaintiff has no viable claim against it because it has no financial interest in the property. (NDEX Joinder at 4.) It did not, however, file a declaration of nonmonetary status pursuant to California Civil Code section 2924l. Section 2924l provides that a trustee under a deed of trust may serve on the parties a declaration of nonmonetary status if it "is named in an action or proceeding in which that deed of trust is the subject, and in the event that the trustee maintains a reasonable belief that it has been named in the action or proceeding solely in its capacity as trustee, and not arising out of any wrongful acts or omissions on its part in the performance of its duties as trustee." Cal. Civ. Code § 2924l(a). If no parties object to the nonmonetary judgment status of the trustee within fifteen days from service of the declaration, "the trustee shall not be required to participate any further in the action or proceeding." Id . § 2924l(d). If a party timely objects, the trustee shall be required to participate. Id. § 2924l(e); see also Cabriales v. Aurora Loan Servs., Civ. No. C-10-161 MEJ, 2010 WL 761081, at *1 n.1 (N.D. Cal. Mar. 2, 2010) (noting the trustee had filed a declaration of nonmonetary status and the trustee was therefore no longer a party to the action). --------
For example, in Shelby v. Ocwen Loan Serv., LLC, Civ. No. 2:14-2844 TLN DAD, 2015 WL 5023020 (E.D. Cal. Aug. 24, 2015), the court found that the trustee was entitled to immunity under section 2924(b) for "carrying out its routine duties as trustee" in furtherance of the non-judicial foreclosure and the plaintiffs had failed to substantiate allegations of malice or any other exception to immunity. Id . at *4. The court therefore dismissed the plaintiffs' wrongful foreclosure claim against the trustee. Similarly, in Lundy v. Selene Finance LP, Civ. No. 15-5676 JST, 2016 WL 1059423 (N.D. Cal. Mar. 17, 2016), the court dismissed the plaintiff's claims against the trustee because they were "based entirely on its role in initiating foreclosure proceedings at the direction of the other Defendants" and the plaintiff identified no allegations that the trustee "acted with malice or in bad faith in discharging its duties as trustee and initiating foreclosure proceedings." Id . at *5; see also Swanson v . EMC Mortg . Corp ., Civ. No. 09-1507 LJO DLB, 2009 WL 4884245, at *5 (E.D. Cal. Dec. 10, 2009) (dismissing the plaintiff's wrongful foreclosure claim against the trustee because of the protection provided by section 2924(b)); Powell v . Wells Fargo Home Mortg ., 2015 WL 4719660, *6-7 (N.D. Cal. Aug. 7, 2015) (finding the trustee was "immune to Plaintiff's state law claims arising from recording of the notice of default and related acts" under section 2924(b) to the extent the trustee relied on the lender's information).
Plaintiff alleges only that NDEX West, LLC, "in accordance with Wells Fargo's directions, filed a Notice of Trustee Sale" and, "in accordance with Wells Fargo's directions, conducted or allowed to be conducted a foreclosure sale of the Subject Property." (Compl. ¶¶ 30-31.) He states that "[d]efendants were guilty of malice, fraud, or oppression" but fails to substantiate this conclusory statement with any supporting facts. (Id. ¶ 59.) Plaintiff's wrongful foreclosure claim against NDEX West, LLC appears to be based entirely on NDEX West, LLC's initiation of non-judicial foreclosure at the direction of Wells Fargo--privileged trustee activity. Accordingly, the court will grant NDEX West, LLC's motion to dismiss plaintiff's wrongful foreclosure claim without prejudice.
IT IS THEREFORE ORDERED that Wells Fargo's motion to dismiss plaintiff's Complaint (Docket No. 6) be, and the same hereby is, DENIED.
IT IS FURTHER ORDERED that NDEX West, LLC's motion to dismiss plaintiff's wrongful foreclosure claim against it (Docket No. 7) be, and the same hereby is, GRANTED without prejudice.
Plaintiff has twenty days from the date this Order is signed to file a First Amended Complaint setting forth a wrongful foreclosure claim against NDEX, West, LLC, if he can do so consistent with this Order. Dated: July 13, 2016
/s/_________
WILLIAM B. SHUBB
UNITED STATES DISTRICT JUDGE