Opinion
CASE NO. SACV 11-324-JST (JCGx)
11-17-2011
Thanh Do, Plaintiff, v. American Home Mortgage Servicing, Inc., et al., Defendants.
ORDER (1) GRANTING DEFENDANTS' MOTION TO DISMISS (Doc. 41), AND (2) DENYING AS MOOT DEFENDANTS' MOTION TO EXPUNGE LIS PENDENS (Doc. 42)
Before the Court are (1) a Motion to Dismiss Plaintiff's First Amended Complaint filed by Defendants American Home Mortgage Servicing, Inc. ("AHMSI"), Power Default Servicing, Inc. ("Power Default"), and Mortgage Electronic Registration Systems, Inc. ("MERS") (collectively, the "Moving Defendants") (Mot. to Dismiss, Doc. 41); and (2) a Motion to Expunge Lis Pendens filed by the Moving Defendants (Mot. to Expunge, Doc. 42). Plaintiff Thanh Do ("Plaintiff") opposed the Motions on September 26, 2011. (Opp'n to Mot. to Dismiss, Doc. 44; Opp'n to Mot. to Expunge, Doc. 45.) The Moving Defendants replied on October 3, 2011. (Reply, Doc. 46.) The Court heard oral argument on November 14, 2011.
For the reasons set forth below, the Court GRANTS the Moving Defendants' Motion to Dismiss, and DENIES AS MOOT the Moving Defendants' Motion to Expunge Lis Pendens.
BACKGROUND
Plaintiff initiated this action on January 26, 2011, by filing a Complaint in Orange County Superior Court against AHMSI, Power Default, MERS, and American Home Mortgage Acceptance, Inc. ("AHMA"), which asserted nine claims arising out of the origination, servicing, and subsequent default of a mortgage loan issued to Plaintiff to finance her residence at 20 Pinyon Jay Lane, Aliso Viejo, CA 92656 (the "Property"). (Notice of Removal, Ex. A, Doc. 1.) On the same date, Plaintiff filed with the Orange County Superior Court and recorded with the Orange County Recorder's Office a Notice of Lis Pendens on the Property. (Defs.' Req. for Judicial Notice ("RJN"), Ex. 6, Doc. 43.)
On September 7, 2011, the Moving Defendants filed a Request for Judicial Notice in support of their Motion to Dismiss Plaintiff's First Amended Complaint and their Motion to Expunge Lis Pendens, requesting that the Court take judicial notice of: (1) six documents pertaining to the Property that had been recorded with the Orange County Recorder's Office, including a November 18, 2004 Deed of Trust, September 2, 2010 Notice of Default, November 1, 2010 Substitution of Trustee, November 6, 2010 Assignment of Deed of Trust, January 3, 2011 Notice of Trustee's Sale, and January 26, 2011 Notice of Lis Pendens (RJN ¶¶ 1-6); (2) a May 18, 2011 Order issued by the Court in this action (id. ¶ 7); (3) a stipulation entered by the parties in this action (id. ¶ 8); and (4) a joint status report filed by the parties in this action (id. ¶ 9). Defendants' Request for Judicial Notice is GRANTED, as the contents of these documents are "not subject to reasonable dispute" in that they are "capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201; see also Kelly v. Johnston, 111 F.2d 613, 615 (9th Cir. 1940) (a district court may take judicial notice of its own records).
On February 25, 2011, the Moving Defendants removed the case to federal court on the basis of diversity jurisdiction. Thereafter, on March 3, 2011, the Moving Defendants filed a Motion to Dismiss Plaintiff's Complaint, and a Motion to Expunge Lis Pendens to remove the January 26, 2011 Notice of Lis Pendens recorded on the Property. Plaintiff chose not to oppose either motion. Accordingly, the Court granted both motions on April 5, 2011, and permitted Plaintiff leave to file an amended complaint within 20 days of the Court's Order. (Order Granting Defs.' Mot. to Dismiss and Mot. to Expunge Lis Pendens As Unopposed, Doc. 10.)
On April 14, 2011, Plaintiff filed a First Amended Complaint ("FAC"), which is the operative complaint in this action and the subject of the Moving Defendants' Motion to Dismiss. (FAC, Doc. 16.) The FAC asserts five claims against AHMA and the Moving Defendants, including claims for: (1) fraud and misrepresentation, (2) violation of California Business and Professions Code § 17200, et seq., (3) breach of contract, (4) breach of the covenant of good faith and fair dealing, and (5) injunction against wrongful foreclosure.
Plaintiff's FAC alleges that on or about November 10, 2004, an AHMA representative contacted Plaintiff to discuss refinancing her home mortgage loan. (FAC ¶ 9.) The AHMA representative "promised" Plaintiff that she would be provided with a "favorable fixed rate thirty-year . . . amortized home loan," and Plaintiff submitted the necessary application and supporting documentation to proceed with the refinance. (Id. ¶ 10.) On November 18, 2004, Plaintiff obtained an adjustable rate mortgage loan from AHMA in the amount of $513,750.00, secured by a Deed of Trust on the Property (the "Loan"). (Id. ¶ 12; RJN, Ex. 1.) Plaintiff alleges that AHMA's loan representative inaccurately described and failed to disclose material terms of the Loan, concealed or otherwise failed to disclose documents that "would have put [her] on notice that she was being provided with an adjustable rate mortgage and not a fixed rate mortgage as promised," and forged Plaintiff's signature on certain loan documents. (FAC ¶¶ 12-13, 22.)
After AHMA originated and funded the Loan, AHMSI assumed responsibility for servicing the Loan. (Id. ¶ 15.) Thereafter, Plaintiff experienced difficulty making her loan payments, and, on or about July 1, 2010, contacted AHMSI to obtain a loan modification. (Id. ¶ 16.) However, AHMSI "refused to review or allow Plaintiff to submit an application for a modification," and instead "immediately advised [her] that modifications 'do not work' for self-employed borrowers and that Plaintiff should 'find a job with a W-2.'" (Id.)
On September 2, 2010, AHMSI and Default Resolution Network recorded a Notice of Default on the Property, which advised Plaintiff that she owed outstanding payments on the Loan in the amount of $20,582.30. (Id. ¶ 17; RJN, Ex. 2.) On November 1, 2010, Power Default was substituted as trustee for the Loan. (FAC ¶ 18; RJN, Ex. 3.) AHMSI and Power Default recorded a Notice of Trustee's Sale on the Property on January 6, 2011. (FAC ¶ 19; RJN, Ex. 5.) The foreclosure sale was subsequently postponed (FAC ¶ 19), and has not yet taken place (Mot. to Dismiss at 2).
The Moving Defendants filed their first motion to dismiss the FAC on May 3, 2011. On May 18, 2011, the Court struck the motion to dismiss, and ordered the parties to participate in Loan Modification Settlement Proceedings. (Order Striking Mot. to Dismiss, Doc. 29.) The Court granted several requests by the parties to continue the deadline to conduct settlement negotiations in order to permit Plaintiff to provide Defendants with the documentation necessary to apply for a loan modification. On August 25, 2011, the parties filed a Joint Status Report advising the Court that "the Parties agree that a loan modification is not feasible" because Plaintiff and her co-obligor failed to produce the necessary tax forms to prove their income for the purposes of a loan modification. (Joint Status Report Re: Loan Modification Settlement Conference ("Joint Status Report") at 2; Doc. 39.) The parties further stipulated that Plaintiff could not produce such forms because neither she, nor her co-obligor, had filed tax returns for tax years 2008, 2009, or 2010. (Id.) Based upon the parties' stipulation, the Court terminated the Loan Modification Settlement Proceedings on August 31, 2011.
On September 7, 2011, the Moving Defendants filed a Motion to Dismiss Plaintiff's FAC and a Motion to Expunge Lis Pendens.
MOTION TO DISMISS
I. Legal Standard
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the claims asserted in the complaint. See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009). Rule 12(b)(6) is read in conjunction with Federal Rule of Civil Procedure 8(a), which requires only a short and plain statement of the claim showing that the pleader is entitled to relief. Fed. R. Civ. P. 8(a)(2). When evaluating a Rule 12(b)(6) motion, the district court must accept all material allegations in the complaint as true and construe them in the light most favorable to the non-moving party. Moyo v. Gomez, 32 F.3d 1382, 1384 (9th Cir. 1994).
To survive a motion to dismiss, a plaintiff must allege "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). "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 556). A complaint must (1) "contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively," and (2) "plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation." Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). "Although for the purposes of a motion to dismiss [the Court] must take all of the factual allegations in the complaint as true, [it] '[is] not bound to accept as true a legal conclusion couched as a factual allegation.'" Iqbal, 129 S. Ct. at 1949-50 (quoting Twombly, 550 U.S. at 555).
II. Discussion
As set forth above, Plaintiff's FAC asserts five claims against Defendants AHMA, AHMSI, Power Default, and MERS. AHMA has not appeared in this action, and therefore does not join the Moving Defendants' Motion to Dismiss. Plaintiff concedes that her allegations regarding AHMA's conduct do not apply to the Moving Defendants. Therefore, the Court does not address them here. (See Opp'n to Mot. to Dismiss at 6.) Plaintiff also concedes that each of her claims against Power Default and MERS should be dismissed. (Opp'n to Mot. to Dismiss at 11.) Accordingly, the Moving Defendants' Motion to Dismiss is GRANTED as to Power Default and MERS.
The Court will address each claim as it pertains to AHMSI in turn.
A. Claim One: Fraud and Misrepresentation
Plaintiff's first claim seeks damages and injunctive relief against AHMSI for fraud and misrepresentation. In order to assert a claim for fraud under California law, Plaintiff must plead: (1) a misrepresentation, (2) knowledge of falsity, (3) intent to defraud, (4) justifiable reliance, and (5) resulting damage. Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 990 (2004).
Plaintiff must also meet the heightened pleading standards of Federal Rule of Civil Procedure 9(b), which requires a "party [to] state with particularity the circumstances constituting fraud," Fed. R. Civ. P. 9(b), including "the who, what, when, where, and how of the misconduct charged" and "what is false or misleading about a statement and why it is false," Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (internal citations and quotation marks omitted) ("Rule 9(b)'s particularity requirement applies to state-law causes of action"). When a plaintiff asserts a fraud claim against a corporation, the requirement of specificity in a fraud action requires "[t]he plaintiff [to] allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written." Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App. 4th 153, 157 (1991).
Here, Plaintiff bases her fraud claim against AHMSI on two alleged misrepresentations. First, Plaintiff alleges that "on or about July 1, 2010, Defendant AHMSI misrepresented that self-employed borrowers cannot submit loan modification applications." (FAC ¶ 24.) Second, Plaintiff asserts that "Defendant AHMSI represented on the Notice of Default that Plaintiff owed $20,582.30 to sufficiently cure the default," which "on information and belief . . . was not an accurate representation of the balance due to her account because Plaintiff's interest rate never should have been adjusted." (Id. ¶ 25).
Neither purported fraudulent statement is sufficiently pled to survive the Moving Defendants' Motion to Dismiss. Plaintiff's allegations regarding AHMSI's statement that Plaintiff was ineligible for loan modification are not pled with sufficient particularity, as the allegations fail to identify both the name of the AHMSI representative who made the allegedly fraudulent statement and that individual's authority to speak on behalf of AHMSI. The allegations also lack underlying facts sufficient to state a claim for fraud that is "plausible on its face," because the FAC is devoid of allegations regarding resulting damage from AHMSI's loan modification representations. Twombly, 550 U.S. at 570.
Likewise, Plaintiff's allegations regarding the amount stated on the Notice of Default are not pled with particularity under Rule 9(b) because the FAC does not contain any facts regarding why the amount stated is false other than Plaintiff's "information and belief" that the interest rate on the Loan should not have been adjusted. Nor do the allegations set forth all elements of a fraud claim under California law because Plaintiff has not alleged that AHMSI knowingly misreported the amount due, that Plaintiff relied on the misrepresentation, or that Plaintiff suffered any damage as a result. Accordingly, the Moving Defendants' Motion to Dismiss Plaintiff's claim for fraud and misrepresentation is GRANTED as to AHMSI.
Plaintiff argues that she should be given leave to amend her fraud claim if the Court grants the Moving Defendants' Motion to Dismiss. "A district court should grant leave to amend . . . unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir.1995)) (internal quotation marks omitted).
Here, leave to amend would be futile as to AHMSI's purported loan modification misrepresentations because, even assuming an AHMSI representative advised Plaintiff that she could not apply for loan modification, Plaintiff cannot allege she was damaged by that misrepresentation. In the parties' Joint Status Report filed with this Court, Plaintiff stipulated that she is ineligible for loan modification because she failed to file tax returns for the years 2008 through 2010 (Joint Status Report at 2), and, therefore, cannot prove her income as required for loan modification. Accordingly, Plaintiff cannot allege the necessary element of causal damages from AHMSI's alleged misrepresentation because she was ineligible for loan modification at the time any purported misstatement was made on July 1, 2010. Therefore, the Court DENIES leave to amend as to Plaintiff's claim for fraud arising out of AHMSI's loan modification misrepresentations.
Plaintiff may, however, be able to cure the deficiencies in her FAC regarding inaccuracies in the Notice of Default. Thus, Plaintiff is granted leave to amend her fraud claim against AHMSI insofar as it pertains to the Notice of Default, provided that Plaintiff can allege facts, consistent with Rule 11 of the Federal Rules of Civil Procedure, that support each element of fraud under California law.
B. Claim Two: Violation of California Business & Professions Code § 17200 et seq.
Plaintiff's second claim alleges that AHMSI engaged in unfair business practices in violation of California's Unfair Competition Law (the "UCL"), California Business and Professions Code §§ 17200, et seq., based on its allegedly fraudulent misrepresentations regarding loan modification, set forth above. (FAC ¶¶ 39-40.) Where, as here, a plaintiff's UCL claim is grounded in fraud, it must meet the heightened pleading standards established by Rule 9(b). Kearns v. Ford Motor Co., 567 F.3d 1120, 1125-26 (9th Cir. 2009). Therefore, Plaintiff's UCL claim fails for the same reason her fraud claim fails— she failed to plead "the names of the persons who made the allegedly fraudulent representations [and] their authority to speak . . . ." Tarmann, 2 Cal. App. 4th at 157.
Also as with Plaintiff's fraud claim, amendment of Plaintiff's UCL claim would be futile as to AHMSI. The UCL only provides a private right of action for persons who have "suffered injury in fact and [have] lost money or property as a result of the unfair competition." Cal. Bus. & Prof. Code § 17204; Californians for Disability Rights v. Mervyn's, LLC, 39 Cal. 4th 223, 227 (2006). A UCL plaintiff must, therefore, prove that the alleged unfair business practice caused the plaintiff harm. There is no causation "when a complaining party would suffer the same harm whether or not a defendant complied with the law." Daro v. Superior Court, 151 Cal. App. 4th 1079, 1099 (2007). Here, Plaintiff would have been denied a loan modification regardless of whether AHMSI "refus[ed] to allow [her] to submit a loan modification because she is self-employed." (FAC ¶ 40.) Accordingly, Plaintiff lacks standing under the UCL to assert a claim against AHMSI, and her claim is DISMISSED with prejudice.
C. Claim Three: Breach of Contract
Plaintiff's third claim alleges that AHMSI breached the written Deed of Trust executed on November 18, 2004, by "failing to service Plaintiff's loan according to the terms disclosed at origination." (FAC ¶ 46; id. ¶ 43). Plaintiff further alleges that AHMSI breached the agreement by "charg[ing] Plaintiff late fees and initiat[ing] foreclosure proceedings." (Id. ¶46.)
These allegations do not state a claim for breach of contract under California law. In California, "[a] cause of action for breach of contract requires proof of the following elements: (1) existence of the contract; (2) plaintiff's performance or excuse for nonperformance; (3) defendant's breach; and (4) damages to plaintiff as a result of the breach." CDF Firefighters v. Moldonado, 158 Cal. App. 4th 1226, 1239 (2008). While Plaintiff has alleged the existence of a contract—the November 18, 2004 agreement for an adjustable rate mortgage, and an excuse for her nonperformance—fraud in the execution of the contract by AHMA, she has failed to allege any breach of the written agreement by AHMSI. Plaintiff points to no provision of the Deed of Trust with which AHMSI failed to comply. On that basis, Plaintiff has failed to state a breach of contract claim against AHMSI based on the written Deed of Trust that "plausibly suggest[s] an entitlement to relief . . . ." Starr v. Baca, 652 F.3d at 1216.
Plaintiff also appears to base her breach of contract claim on AHMSI's supposed breach of oral representations made by AHMA at the time of origination that vary from those memorialized in the written Deed of Trust. (FAC ¶¶ 44-48.) Such a claim fails as a matter of law.
Under California law, "[a] mortgage or deed of trust . . . comes within the statute of frauds." Secrest v. Sec. Nat'l Mortg. Loan Trust 2002-2, 167 Cal. App. 4th 544, 553 (2008) (citing Cal. Civ. Code § 2922). Accordingly, a mortgage or deed of trust is invalid unless it is memorialized by a writing signed by the party to be charged. Cal. Civ. Code § 1624. Any oral "contract" between AHMA and Plaintiff for a fixed rate mortgage is, therefore, barred by the statute of frauds and could not have been breached by AHMSI.
Therefore, the Moving Defendants' Motion to Dismiss is GRANTED as to AHMSI. The Court grants Plaintiff leave to amend her claim insofar as she can allege facts, consistent with Rule 11 of the Federal Rules of Civil Procedure, which support a breach of the written Deed of Trust by AHMSI.
D. Claim Four: Breach of Covenant of Good Faith and Fair Dealing
Plaintiff's fourth claim for relief asserts that AHMSI breached the covenant of good faith and fair dealing by fraudulently representing to Plaintiff that she could not apply for loan modification because she was self-employed. (FAC ¶ 55(d).)
California law implies a covenant of good faith and fair dealing in every contract, which imposes an obligation on contracting parties to "discharge their contractual obligations fairly and in good faith." Mundy v. Household Fin. Corp., 885 F.2d 542, 544 (9th Cir. 1989) (applying California law); see also Guz v. Bechtel Nat'l. Inc., 24 Cal. 4th 317, 349 (2000). However, the implied covenant of good faith and fair dealing is not limitless. Rather, it "exists merely to prevent one contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement actually made." Guz, 24 Cal. 4th at 349 (emphasis added). "The covenant thus cannot be endowed with an existence independent of its contractual underpinnings." Id. (quoting Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 36 (1995)). Nor can it "impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement." Id.
Here, Plaintiff has not alleged any term of the written Deed of Trust that imposes a duty on AHMSI to offer her a loan modification. Nor could she because none exists. Accordingly, Plaintiff's claim for breach of the covenant of good faith and fair dealing is DISMISSED with prejudice as to AHMSI.
E. Claim Five: Injunction Against Wrongful Foreclosure
Plaintiff's fifth claim seeks an injunction against the wrongful foreclosure of her property. In her FAC, Plaintiff asserts two bases for her wrongful foreclosure claim: (1) AHMSI failed to comply with the requirements of California Civil Code § 2923.5; and (2) AHMSI failed to comply with the requirements of California Civil Code § 2923.53. (FAC ¶¶ 57-65.) In her opposition, Plaintiff concedes that she cannot state a claim under either section because section 2923.5 is preempted by federal law and section 2923.53 was repealed prior to the filing of this action. (Opp'n to Mot. to Dismiss at 10.) Accordingly, Plaintiff's claim for wrongful foreclosure is DISMISSED as to AHMSI.
The Court notes that Plaintiff's claim for injunction against wrongful foreclosure is incorrectly labeled in Plaintiff's FAC as the "sixth cause of action." The Court will refer to Plaintiff's wrongful foreclosure claim as Plaintiff's "fifth" claim, which is how it should have been numbered sequentially in Plaintiff's FAC.
Plaintiff contends that she should be permitted to amend her wrongful foreclosure claim because "she has alleged all the specific elements to state a valid claim for injunction against wrongful foreclosure based on allegations of fraud and misrepresentation . . . ." (Id. at 11.) The Court disagrees. Any additional fraud claim against AHMSI is duplicative of Plaintiff's first claim, which fails for the reasons set forth above. To the extent Plaintiff seeks to assert a separate claim for an injunction, her efforts are misplaced because "injunctive relief is a remedy, not a cause of action." Guessous v. Chrome Hearts, LLC, 179 Cal. App. 4th 1177, 1187 (2009). Therefore Plaintiff's fifth claim is dismissed with prejudice as to AHMSI. MOTION TO EXPUNGE LIS PENDENS
In addition to filing their Motion to Dismiss Plaintiff's FAC, the Moving Defendants also Filed a Motion to Expunge Lis Pendens, requesting that the Court (1) expunge the Notice of Lis Pendens recorded by Plaintiff on January 26, 2011, and (2) award the Moving Defendants attorney's fees in the amount of $2,227.50 for the time expended in drafting and filing their Motion. (Mot. to Expunge at 2.) Such a motion was unnecessary, however, because the Court already granted the Moving Defendants' request to expunge the January 26, 2011 Notice of Lis Pendens after Plaintiff failed to oppose the Moving Defendants' Motion to Expunge Lis Pendens filed on March 3, 2011. (Doc. 10.) Accordingly, the Moving Defendants' Motion to Expunge is DENIED AS MOOT. Their request for attorney's fees is also DENIED because the filing of the current motion was unnecessary.
CONCLUSION
For the foregoing reasons, the Court ORDERS:
(1) The Moving Defendants' Motion to Dismiss (Doc. 41) is GRANTED:
A. Plaintiff's FAC is DISMISSED with prejudice as to Power Default and MERS.(2) The Moving Defendants' Motion to Expunge Lis Pendens (Doc. 42) is DENIED AS MOOT.
B. Plaintiff's second, fourth, and fifth claims are DISMISSED with prejudice as to AHMSI.
C. Plaintiff's first and third claims are DISMISSED with leave to amend as to AHMSI in a manner consistent with this Order.
(3) The Moving Defendants' request for attorney's fees (Doc. 42) is DENIED.
(4) Plaintiff is given leave to file a Second Amended Complaint within 21 days of this Order. Failure to file a Second Amended Complaint by that date shall be deemed consent to the dismissal of Plaintiff's claims against AHMSI with prejudice.
JOSEPHINE STATON TUCKER
UNITED STATES DISTRICT JUDGE