Atikur R. Khan et al v. Phh Mortgage Corporation et al

NOTICE OF MOTION AND MOTION to Dismiss First, Third, and Seventh Claims of the Second Amended Complaint

C.D. Cal.March 6, 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT DAVID J. REED (SBN 206338) reedd@ballardspahr.com BALLARD SPAHR LLP 2029 Century Park East, Suite 800 Los Angeles, California 90067-2909 Telephone: 424.204.4400 Facsimile: 424.204.4350 Attorneys for Defendants PHH Mortgage Corporation and Citibank National Association, as Trustee for GSAA Home Equity Trust 2007-9 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA – WESTERN DIVISION ATIKUR R. KHAN, et. al, PLAINTIFFS, vs. PHH MORTGAGE CORPORATION, a New Jersey Corporation, et. al, DEFENDANTS. Case No. 2:15-CV-03213-BRO-E [Assigned to the Hon. Beverly Reid O’Connell] NOTICE OF MOTION AND MOTION TO DISMISS THE FIRST, THIRD, AND SEVENTH CLAIMS OF THE SECOND AMENDED COMPLAINT [Fed. R. Civ. P. 12(b)(6)] [Filed with Memorandum of Points and Authorities; Request for Judicial Notice; [Proposed] Order] Date: April 10, 2017 Time: 1:30 p.m. Ctrm: 7C Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 1 of 16 Page ID #:682 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 2 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT TO PLAINTIFFS AND THEIR ATTORNEYS: Please take notice that, on April 10, 2017 at 1:30 p.m. before the Honorable Beverly Reid O’Connell in Courtroom 7C of the United States Courthouse, 350 West 1st Street, Los Angeles, CA 90012, Defendants PHH Mortgage Corporation and Citibank National Association, as Trustee for GSAA Home Equity Trust 2007-9 (collectively “Defendants”), will move to dismiss the First, Third and Seventh Claims of Plaintiffs’ Second Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted on the grounds that: (1) Plaintiffs have failed to plead the requisite facts to support their claims; and (2) Plaintiffs’ claims fail as a matter of law. This Motion is based upon this Notice, the Memorandum of Points and Authorities, the documents attached to Defendants’ Request for Judicial Notice (“RJN”), the Second Amended Complaint, the Proposed Order, the argument of counsel at the hearing, if any, and any further matters as this Court deems proper to consider. This Motion is also brought following conferences of counsel pursuant to L.R. 7-3 which took place on February 24, 2017. An informal resolution was not reached. DATED: March 6, 2017 DAVID J. REED BALLARD SPAHR LLP /s/ David J. Reed David J. Reed Attorneys for Defendants PHH Mortgage Corporation and Citibank National Association, as Trustee for GSAA Home Equity Trust 2007-9 Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 2 of 16 Page ID #:683 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 i NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT TABLE OF CONTENTS Page(s) I. INTRODUCTION ........................................................................................... 1 II. STATEMENT OF FACTS AND PROCEDURAL HISTORY ...................... 2 III. ARGUMENT .................................................................................................. 4 A. Applicable Legal Standard .................................................................... 4 B. The Court Should Dismiss The Khans’ First, Third and Seventh Claims ................................................................................................... 5 1. The Khans’ Claim Under Civil Code Section 2923.6 Fails As A Matter of Law Because The Khans Defaulted Under A Prior Modification ................................................................... 5 2. The Khans’ Claim Under Section 2924.9 Also Fails As A Matter Of Law Because The Khans Defaulted Under A Prior Loan Modification ............................................................. 6 3. The Khans’ Negligence Claim Fails As A Matter Of Law ........ 6 IV. CONCLUSION ............................................................................................. 11 Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 3 of 16 Page ID #:684 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 ii NOTICE OF MOTION AND MOTION TO DISMISS TABLE OF AUTHORITIES Page(s) Federal Cases Aguinaldo v. Ocwen Loan Servicing, LLC, No. 5:12-CV-01393-EJD, 2012 WL 3835080 (N.D. Cal. Sept. 4, 2012) ................ 7 Ahmadi v. Nationstar Mortg., LLC, 2016 U.S. Dist. LEXIS 45904 (C.D. Cal. Mar. 31, 2016 ...................................... 10 Ansanelli v. JP Morgan Chase Bank, N.A., 2011 U.S. Dist. LEXIS 32350 (N.D. Cal. Mar. 28, 2011) ....................................... 9 Armstrong v. Chevy Chase Bank, FSB, 2012 U.S. Dist. LEXIS 144125 (N. D. Cal. Oct. 3, 2012) ....................................... 9 Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 137 (2009) ........................................................................ 4 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007) ..................................................................... 4 Benson v. Ocwen Loan Servicing, LLC, 562 Fed. Appx. 567 (9th Cir. Cal. 2014) ................................................................. 9 Bunce v. Ocwen Loan Servicing, LLC, 2013 WL 3773950 (E.D. Cal. July 17, 2013) .......................................................... 9 Colom v. Wells Fargo Home Mortg., Inc., 2014 U.S. Dist. LEXIS 91175 (N.D. Cal. July 3, 2014) .......................................... 8 Cornejo v. Ocwen Loan Servicing, LLC, 151 F. Supp. 3d 1102 (E.D. Cal. 2015) .................................................................... 8 Deschaine v. IndyMac Mortg. Servs., 617 Fed. Appx. 690 (9th Cir. 2015) ......................................................... 5, 9, 10, 11 Duran v. World Sav. Bank, FSB, 2016 U.S. Dist. LEXIS 67280 (C.D. Cal. Apr. 29, 2016) ....................................... 5 Guillermo v. Caliber Home Loans, Inc., No. CV 14–4212 JSW, 2015 WL 1306851 (N.D. Cal. Mar. 23, 2015) ................... 8 Hernandez v. Select Portfolio Servicing, Inc., 2015 U.S. Dist. LEXIS 82922 (C.D. Cal. June 25, 2015; J. Morrow) .................. 10 James v. Litton Loan Servicing, LP, No. 10-05407, 2011 WL 724969 (N.D.Cal. Feb.22, 2011) ..................................... 7 Lovelace v. Software Spectrum Inc., 78 F.3d 1015 (5th Cir. 1996) .................................................................................... 4 Lyons v. Bank of America, N.A., No. 11-01232, 2011 WL 3607608 (N.D.Cal. Aug.15, 2011) .................................. 7 Maib v. F.D.I.C., 771 F. Supp. 2d 14 (D. D.C. 2011) .......................................................................... 4 Marks v. Ocwen Loan Servicing, No. 07-2133, 2009 WL 975792 (N.D.Cal. Apr.10, 2009) ....................................... 7 Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 4 of 16 Page ID #:685 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 iii NOTICE OF MOTION AND MOTION TO DISMISS Mina Ha v. Bank of Am., N.A., 2014 U.S. Dist. LEXIS 100239 (N.D. Cal. July 22, 2014) ...................................... 8 Missud v. Oakland Coliseum Joint Venture, 2013 U.S. Dist. LEXIS 29915 (N.D. Cal. Mar. 5, 2013) ......................................... 4 N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578 (9th Cir. 1983) .................................................................................... 4 Rosenfeld v. Nationstar Mortg., LLC, 2013 U.S. Dist. LEXIS 118161 (C.D. Cal. Aug. 19, 2013) ..................................... 9 Sears, Roebuck & Co. v. Metropolitan Engravers, Limited, 245 F.2d 67 (9th Cir. 1956) ...................................................................................... 4 Segura v. Wells Fargo Bank, N.A., No. CV 144195 MWF (AJWx), 2014 WL 4798890, at *13–14 (C.D. Cal. Sept. 26, 2014) ................................................................................................................... 8 California Cases Alvarez v. BAC Home Loans Servicing, L.P., 228 Cal. App. 4th 941 (2014) ......................................................................... 8, 9, 10 Lueras v. BAC Home Loans Servicing L.P., 221 Cal. App. 4th 49 (2013) ..................................................................... 8, 9, 10, 11 Perlas v. GMAC Mortg., LLC, 187 Cal. App. 4th 429 (2010) ................................................................................. 10 Ragland v. U.S. Bank Nat. Assn., 209 Cal. App. 4th 182 (2012) ................................................................................. 10 Wagner v. Benson, 101 Cal. App. 3d 27 (1980) .................................................................................... 10 Statutes Cal Civ. Code §§ 2923.6(c)(1)-(3) .............................................................................. 5 Cal. Civ. Code § 2923.6(c)(3) ..................................................................................... 5 Cal. Civ. Code § 2924.9(a) .......................................................................................... 6 Cal. Civil Code § 2923.6 ......................................................................................... 1, 5 Cal. Civil Code § 2923.6(c) ......................................................................................... 5 Cal. Civil Code § 2924.9 ......................................................................................... 1, 6 Fed. R. Civ. P. 12(b)(6) ........................................................................................... 1, 4 Fed. R. Evid. 201(d) .................................................................................................... 4 Federal Rule of Appellate Procedure 32.1(a) .............................................................. 5 Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 5 of 16 Page ID #:686 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 1 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT I. INTRODUCTION The Second Amended Complaint (“SAC”) filed by plaintiffs Atikur R. Khan and Rubyna Khan (the “Khans”) against defendants PHH Mortgage Corporation (“PHH”) and Citibank National Association, as Trustee for GSAA Home Equity Trust 2007-9 (“Citibank”) (collectively the “Defendants”) does not cure the defects of the claims dismissed by this Court from the First Amended Complaint. Although Plaintiffs finally acknowledge for the first time the loan modification they obtained in 2009, they continue to ignore to dispositive legal consequences of that modification on their claims: put simply, the prior modification bars their claims under Cal. Civil Code §§ 2923.6 and 2924.9. Plaintiffs have also failed to allege facts constituting proximate causation, and their negligence claim should therefore be dismissed. This motion seeks dismissal with prejudice of three claims that this Court previously dismissed with leave to amend.1 Plaintiffs have attempted to plead those claims again, but the claims fail: first, Plaintiffs have failed to state a claim for violation of Cal. Civil Code § 2923.6 because that statute does not apply to borrowers who have breached previously modified loans; second, the Khans have failed to state a claim for violation of Civil Code section 2924.9, because that statute also expressly does not apply where a borrower has previously exhausted a first line modification process; and third, Plaintiffs have failed to state a claim for negligence because they have not alleged facts constituting the element of proximate cause. The negligence claim should also be dismissed because a lender or loan servicer does not owe a borrower a duty of care in evaluating a loan modification application. For these reasons, the First, Third and Seventh Claims should be dismissed with prejudice pursuant to Fed. R. Civ. P. 12(b)(6) . 1 The claims that should be dismissed are the First Claim for violation of Cal. Civil Code § 2923.6, the Third Claim for violation of Civil Code 2924.9, and the Seventh Claim for negligence. Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 6 of 16 Page ID #:687 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 2 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT II. STATEMENT OF FACTS AND PROCEDURAL HISTORY On May 25, 2007, the Khans obtained a loan in the amount of $750,000.00 from Banco Popular, N.A. (the “Loan”). See SAC at Exhibit ‘A.’ The Loan was secured by a deed of trust executed by the Khans on May 25, 2007, and recorded on June 1, 2007 in the Office of the Recorder of Deeds for Los Angeles County as Document No. 20071329880 (the “Deed of Trust”), which secured repayment of the Loan with real property located at 816206 Alpine Place, La Mirada, CA 90638 (the “Property”). See id. Pursuant to the terms of the Deed of Trust, Banco Popular, N.A. was named as the lender, Mortgage Electronic Registration Systems, Inc. (“MERS”) was named as the beneficiary, solely as nominee for the lender and the lender’s successors and assigns, and First American Title (“First American”) was named as the trustee. See id. The Khans agreed to grant and convey the Property to First American, as trustee, and agreed that the trustee would have the power to sell the Property upon default. See id. Thereafter, the Khans entered into a loan modification agreement, which was recorded on July 20, 2010 as Document No. 20100992715. See request for Judicial Notice, Ex. 1. In 2012, the Khans submitted an application to PHH in pursuit of a second loan modification (the “First Application”). See SAC at ¶ 17. PHH reviewed the Khans for a loan modification, and on July 25, 2012 issued a denial letter, advising the Khans that they were not eligible for a loan modification because their income was insufficient to cover their monthly expenses. See SAC at ¶ 19. On August 6, 2012, almost immediately after receiving the denial letter, the Khans submitted a new request for a loan modification (the “Second Application”). See SAC at ¶ 20. Subsequently, the Khans defaulted on the Loan by failing to make the required monthly payment due May 1, 2013 and each month thereafter. See SAC at ¶ 22, & Exhibit ‘D.’ Defendant Aztec Foreclosure Corporation (“Aztec”) was substituted as trustee under the Deed of Trust, see SAC at ¶ 6, and on October 1, Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 7 of 16 Page ID #:688 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 3 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT 2013, Aztec recorded a Notice of Default (“NOD”), commencing the non-judicial foreclosure proceedings against the Property. See SAC at ¶ 23 & Exhibit ‘D’. Effective September 5, 2013, MERS assigned the beneficial interest under the Deed of Trust to Citibank, and an Assignment of Deed of Trust (the “Assignment”) was recorded on September 17, 2013 in the Office of the Recorder of Deeds for Los Angeles County as Document Number 20131353676. See SAC at ¶ 5 & Exhibit ‘B.’ On January 2, 2014, as a result of the default remaining uncured, Aztec proceeded to schedule a foreclosure sale for January 23, 2014 by recording a Notice of Trustee’s Sale (the “Notice of Sale”) in the Office of the Recorder of Deeds for Los Angeles County as Document 20140001195. See SAC at Exhibit ‘C’. The sale was subsequently postponed, and on October 22, 2014 the Khans submitted another application for a loan modification to PHH. See SAC at ¶¶ 26 - 27. The Khans submitted an additional application in February 2015. See SAC at ¶ 55. On March 2, 2015, the Khans submitted additional documents requested by PHH. See SAC at ¶ 57. A second Notice of Trustee’s Sale was recorded on March 5, 2015, setting a sale date of March 26, 2015. See SAC at ¶ 58. On March 19, 2015, the Khans filed a complaint in the Superior Court of California for Los Angeles County, case number VC064664, commencing this action. The complaint was removed to this Court on April 29, 2015, and on May 6, 2015 the parties filed a joint stipulation to stay the action for sixty (60) days, in order to pursue settlement discussions. During the stay, PHH conducted yet another review for a potential loan modification, and ultimately, reached the same conclusion, that the Khans do not qualify for a loan modification because their income is insufficient to cover their monthly expenses. The Khans were informed of the denial of their application “on or around June 9, 2015.” See SAC, ¶ 60. Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 8 of 16 Page ID #:689 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 4 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT III. ARGUMENT A. Applicable Legal Standard A complaint may be dismissed for failure to state a claim for which relief can be granted under Fed. R. Civ. P. 12(b)(6) of the Federal Rules of Civil Procedure. The purpose of a motion to dismiss under Fed. R. Civ. P. 12(b)(6) is to test the legal sufficiency of the complaint. Missud v. Oakland Coliseum Joint Venture, 2013 U.S. Dist. LEXIS 29915 at *37 (N.D. Cal. Mar. 5, 2013) (citing N. Star Int’l v. Ariz. Corp. Comm’n, 720 F.2d 578, 581 (9th Cir. 1983)). In two decisions in the last eight years – Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 137 (2009) – the Supreme Court established more rigorous standards for complaints to survive motions to dismiss. Thus, “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of a cause of action’s elements will not do.” Twombly, 127 S. Ct. at 1964-65. In order to defeat a dismissal motion, a plaintiff must allege facts that are sufficient to raise his right to relief “above the speculative level.” Twombly, 127 S. Ct. at 1965. In sum, a plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Twombly, 127 S. Ct. at 1974; Iqbal, 129 S. Ct. at 1949. In deciding a motion to dismiss for failure to state a claim upon which relief can be granted, courts may consider matters of which they may take judicial notice, in addition to considering the complaint and documents attached to or incorporated in the complaint. Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1017-18 (5th Cir. 1996). “The court may take judicial notice at any stage of the proceeding.” Fed. R. Evid. 201(d). “[J]udicial notice may be taken of a fact to show that a complaint does not state a cause of action.” Sears, Roebuck & Co. v. Metropolitan Engravers, Limited, 245 F.2d 67, 70 (9th Cir. 1956). Also, a court may review documents outside of the complaint if it was relied upon by the plaintiff’s complaint. Maib v. F.D.I.C., 771 F. Supp. 2d 14, 17 (D. D.C. 2011). Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 9 of 16 Page ID #:690 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 5 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT B. The Court Should Dismiss The Khans’ First, Third and Seventh Claims 1. The Khans’ Claim Under Civil Code Section 2923.6 Fails As A Matter of Law Because The Khans Defaulted Under A Prior Modification The Khans’ first claim should be dismissed because Cal. Civil Code § 2923.6 does not apply where a borrower obtains, and then defaults under, a loan modification. Generally, § 2923.6 prohibits dual tracking, by prohibiting a servicer from taking certain affirmative steps to advance the foreclosure process if a borrower has submitted “a complete loss mitigation application.” Cal. Civil Code § 2923.6(c). Specifically, the Section provides that if a borrower has submitted a complete loss mitigation application, the servicer shall not record a notice of default or notice of sale, or conduct a sale, until the servicer makes a written determination that the borrower is not eligible and any appeal period has expired, the borrower fails to accept a modification offer, or the borrower accepts and then defaults on a modification offer. Cal Civ. Code §§ 2923.6(c)(1)-(3). After a borrower defaults on a loan that was modified prior to January 1, 2013, however, the provisions section 2923.6 do not apply and the lender is free to proceed with foreclosure. Cal. Civ. Code § 2923.6(c)(3); Duran v. World Sav. Bank, FSB, 2016 U.S. Dist. LEXIS 67280, at *8 (C.D. Cal. Apr. 29, 2016) (“a lender may file notice of default, notice of sale, or commence a foreclosure sale upon a subject property if the mortgagor defaults on a previously modified first lien loan.”); Deschaine v. IndyMac Mortg. Servs., 617 Fed. Appx. 690, 693 (9th Cir. 2015) (because of Deschaine’s multiple defaults, Deschaine did not have a statutory right to appeal subsequent loan modification application denials.”).2 2 Although Deschaine is unpublished, pursuant to Federal Rule of Appellate Procedure 32.1(a), citations to unpublished orders by the Ninth Circuit are permitted, although such decisions are non-precedential. Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 10 of 16 Page ID #:691 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 6 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT Here, Plaintiffs allege that their loan was modified in 2009 and that they defaulted under the modified payments. See SAC, ¶¶ 14, 22. Accordingly, subsection (c)(3) applies to this case, and the dual-tracking provisions do not. 2. The Khans’ Claim Under Section 2924.9 Also Fails As A Matter Of Law Because The Khans Defaulted Under A Prior Loan Modification The Khans’ third claim, alleging a violation of Cal. Civ. Code § 2924.9, should be dismissed because § 2924.9 does not apply where “a borrower has previously exhausted the first lien loan modification process offered by, or through, his or her mortgage servicer.” Cal. Civ. Code § 2924.9(a). Section 2924.9 requires that servicers send borrowers certain information about foreclosure prevention alternatives and how to apply for consideration of such alternatives within five days of recording a notice of default. Plaintiffs allege that they obtained a loan modification in 2009. See SAC, ¶ 14 & RJN, Ex. 1. Therefore, they successfully exhausted the first lien loan modification process, and section 2924.9 does not apply to the Khans. Beyond the fact that § 2924.9 expressly does not apply to borrowers who have already exhausted the modification process, the Khans have not alleged any harm or damage from a violation of § 2924.9. The Khans allege that they were evaluated for an additional loan modification both before and after the Notice of Default was recorded. See SAC, ¶¶ 19-20 & 45. Their complaint that they did not receive a letter telling them how to apply for a loan modification does not give rise to any claim. The Third Claim for violation of § 2924.9 should be dismissed with prejudice. 3. The Khans’ Negligence Claim Fails As A Matter Of Law In their Seventh Claim, the Khans allege that Defendants negligently reviewed their application for a further a loan modification. See SAC at ¶¶ 172-188. This Court previously dismissed the Khans’ negligence claim, finding “that Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 11 of 16 Page ID #:692 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 7 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT Plaintiffs’ FAC fails to adequately allege the third requirement for a negligence cause of action: causation.” See Docket No. 47 at p. 17 (Order on Motion to Dismiss First Amended Complaint). Despite the fact that this Court identified the exact defect of the negligence claim, the Khans have not fixed it. Instead, the SAC merely repeats the claim that “Plaintiffs would have taken additional loss mitigation steps sooner.” See SAC, ¶ 179. This Court has already found that allegation to be too speculative to demonstrate proximate causation. See Docket No. 47 at p. 17. Moreover, Plaintiffs concede that they and defaulted under the modified loan. See SAC, ¶ 22. Thus, the proximate cause of the foreclosure of Plaintiffs’ loan is their failure to make the payments they agreed to make when they obtained the loan, not any alleged flaw in a later loan modification review. The seventh claim should be dismissed because Plaintiffs have not alleged facts constituting proximate cause of any harm to them. The claim should also be dismissed because lenders and servicers do not owe any duty of care to borrowers. See Aguinaldo v. Ocwen Loan Servicing, LLC, No. 5:12-CV-01393-EJD, 2012 WL 3835080, at *7 (N.D. Cal. Sept. 4, 2012) (dismissing borrowers’ negligence claim premised on allegation that servicer owed a duty not to foreclose until financial review had been completed because “[s]uch a duty between a borrower and loan servicer that would give rise to a negligence action [] has not been recognized under the law.” (citing Lyons v. Bank of America, N.A., No. 11-01232, 2011 WL 3607608, at *8 (N.D.Cal. Aug.15, 2011) (“[T]he weight of authority holds that a lender or loan servicer owes no duty of reasonable care to a borrower.”); James v. Litton Loan Servicing, LP, No. 10-05407, 2011 WL 724969 (N.D.Cal. Feb.22, 2011) (finding no fiduciary duty between a borrower and loan servicer); Marks v. Ocwen Loan Servicing, No. 07-2133, 2009 WL 975792, at *7 (N.D.Cal. Apr.10, 2009) (“[A] loan servicer does not owe a fiduciary duty to a borrower beyond the duties set forth in the loan contract.”). The California Courts of Appeal have reached different conclusions as to Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 12 of 16 Page ID #:693 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 8 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT whether lenders owe borrowers a duty of care when considering a loan modification application. Compare Lueras v. BAC Home Loans Servicing L.P., 221 Cal. App. 4th 49, 67 (2013) (residential loan modification is a traditional lending activity, and does not create a duty of care), with Alvarez v. BAC Home Loans Servicing, L.P., 228 Cal. App. 4th 941, 948 (2014) (servicer has no general duty to offer modification, but a duty does arise when servicer agrees to consider borrower’s application for modification). Federal district courts in California recognizing this division have also reached different results. Compare, e.g., Segura v. Wells Fargo Bank, N.A., No. CV 144195 MWF (AJWx), 2014 WL 4798890, at *13–14 (C.D. Cal. Sept. 26, 2014) (duty of care exists once lender offers borrowers opportunity to apply for a modification), with Guillermo v. Caliber Home Loans, Inc., No. CV 14– 4212 JSW, 2015 WL 1306851, at *5–7 (N.D. Cal. Mar. 23, 2015) (no general duty to review loan modification applications with due care). Less than a year before Alvarez, another California court ruled that loan servicing and modification activity do not alter the traditional borrower-lender relationship in which the lender owes no duty of care. Lueras, 221 Cal. App. 4th at 67-68. Lueras held that “a loan modification is the renegotiation of loan terms, which falls squarely within the scope of a lending institution’s conventional role as a lender of money.… The Biakanja factors do not support imposition of a common law duty to offer or approve a loan modification… [or] a duty of care to handle [a borrower’s] loan in such a way to prevent foreclosure and forfeiture of his property.” Notably, virtually all federal courts have adhered to the reasoning of Lueras and have relied on it by dismissing negligence claims.3 Given the majority 3 See, e.g., Cornejo v. Ocwen Loan Servicing, LLC, 151 F. Supp. 3d 1102, 1116 (E.D. Cal. 2015) (dismissing negligence claim; “The Court agrees with the Lueras rationale. In the Court’s view, making a loan modification falls squarely within the lender’s ‘conventional role as a lender of money’ and does not constitute ‘active participation’ outside the role as lender.”); Mina Ha v. Bank of Am., N.A., 2014 U.S. Dist. LEXIS 100239, at *29 (N.D. Cal. July 22, 2014); Colom v. Wells Fargo Home Mortg., Inc., 2014 U.S. Dist. LEXIS 91175, at *3 (N.D. Cal. July 3, 2014) (“defendant does not owe plaintiff a duty of care in connection with its review of his application for a loan modification”). Moreover, in a decision from the Ninth Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 13 of 16 Page ID #:694 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 9 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT of cases that adhere to Lueras, it is clear that Alvarez is an outlier opinion and should not be followed. Equally notable about the shaky underpinnings of Alvarez is its reliance on a small number of older district court opinions that were in the minority position when issued and have since been discredited by later opinions. Those outlier decisions include Ansanelli v. JP Morgan Chase Bank, N.A., 2011 U.S. Dist. LEXIS 32350 (N.D. Cal. Mar. 28, 2011) and its progeny. Those cases form the backbone of Alvarez’s reasoning. Alvarez, supra, at 947-949. Yet the majority of district courts that have come after Ansanelli and its progeny have held that those cases were wrongly decided. “Ansanelli and its progeny represent a minority position.” Deschaine v. IndyMac Mortg. Servs., 2014 U.S. Dist. LEXIS 8541, at *7 (E.D. Cal. Jan. 22, 2014); Bunce v. Ocwen Loan Servicing, LLC, 2013 WL 3773950, at *6 (E.D. Cal. July 17, 2013) (“This court, like the court in Armstrong, finds Ansanelli unpersuasive”). Indeed, courts from the Northern District, where Ansanelli was decided, were quick to reject its holding. Armstrong v. Chevy Chase Bank, FSB, 2012 U.S. Dist. LEXIS 144125, at *14 (N. D. Cal. Oct. 3, 2012) (“The minority of cases which hold otherwise, such as Ansanelli, are unpersuasive”); Rosenfeld v. Nationstar Mortg., LLC, 2013 U.S. Dist. LEXIS 118161, at *16-*17 (C.D. Cal. Aug. 19, 2013) (rejecting Ansanelli as “unpersuasive and going against the general consensus view that loan modifications are closely tied to financial institutions routine lending activities.”). California state courts have also been quick to reject the reasoning of Ansanelli. See, e.g., Lueras, supra, at 63 (discussing and distinguishing Ansanelli.) Thus, the reasoning that led to Alvarez’s holding is flawed – a flaw recognized by many courts. The stronger reasoning is found in Lueras, which represents the approach taken by California state courts as to lender-borrower activities, including servicing, Circuit addressing the issue raised in Lueras, that court also adopted its reasoning. Benson v. Ocwen Loan Servicing, LLC, 562 Fed. Appx. 567, 569-570 (9th Cir. Cal. 2014) (“neither Ocwen nor HSBC owed Benson a common law duty of care”). Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 14 of 16 Page ID #:695 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 10 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT modification, and foreclosure. See Perlas v. GMAC Mortg., LLC, 187 Cal. App. 4th 429 (2010). Lenders also owe no duty of care to borrowers in processing loan documents or approving loans. See Wagner v. Benson, 101 Cal. App. 3d 27, 35 (1980); see also Ragland v. U.S. Bank Nat. Assn., 209 Cal. App. 4th 182, 207 (2012). Most current district courts adopt Lueras, not Alvarez. In Ahmadi v. Nationstar Mortg., LLC, 2016 U.S. Dist. LEXIS 45904 (C.D. Cal. Mar. 31, 2016; J. Guilford), the court held that it “agrees with the growing number of courts, including this one, that approve of Lueras and find that processing a residential loan modification ‘falls squarely within the scope of a lending institution's conventional role,’ and does not give rise to a duty of care to the borrower.” Id. at *15; see also Hernandez v. Select Portfolio Servicing, Inc., 2015 U.S. Dist. LEXIS 82922, at *56 (C.D. Cal. June 25, 2015; J. Morrow) (“a lender that agrees to consider a borrower’s loan modification application does not act outside its conventional role as a money lender and does not owe a duty of care”). On a final note, the Ninth Circuit recently considered a negligence claim similar to that presented by plaintiff and affirmed the district court’s dismissal. Deschaine v. IndyMac Mortg. Services, 617 Fed. Appx. 690 (9th Cir. 2015). In Deschaine, the borrower alleged “that IndyMac used the wrong income when it determined he did not qualify for a permanent Home Affordable Modification Program (‘HAMP’) loan modification.” Deschaine, 617 Fed. Appx. at 692. Embracing the Lueras decision, the Court of Appeals explained: The district court did not err in dismissing Deschaine’s negligence claim, because IndyMac did not have “a common law duty of care to offer, consider, or approve a loan modification, or to explore and to offer [Deschaine] foreclosure alternatives.” In California, as a “general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 15 of 16 Page ID #:696 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DMEAST #28503624 v1 11 NOTICE OF MOTION AND MOTION TO DISMISS SECOND AMENDED COMPLAINT scope of its conventional role as a mere lender of money.” Therefore, IndyMac owed no duty of care to Deschaine when considering his request for a loan modification, because “a loan modification is the renegotiations of loan terms, which falls squarely within the scope of a lending institution’s conventional role as a lender of money.” Deschaine, 617 Fed. Appx. at 693. Although Deschaine is unpublished, it certainly appears that the Ninth Circuit finds the reasoning in Lueras to be persuasive. As Lueras makes clear, there is no basis for alleging negligence under these circumstances. The Seventh Claim should be dismissed with prejudice. Finally, even if there was a duty of care owed to plaintiffs – which there was not – plaintiffs cannot establish that an alleged breach was the cause of any injury. Any and all damages were caused by plaintiffs’ longstanding default on the loan, not by PHH. Plaintiffs’ defective allegations discussed previously do not show otherwise. Thus, plaintiffs are not able to assert a negligence claim based on loan modification or foreclosure processing. IV. CONCLUSION For the foregoing reasons, Defendants PHH Mortgage Corporation and Citibank National Association, as Trustee for GSAA Home Equity Trust 2007-9 respectfully request that the Court grant its Motion to and dismiss the first, third and seventh claims of Plaintiffs’ SAC with prejudice. DATED: March 6, 2017 DAVID J. REED BALLARD SPAHR LLP /s/ David J. Reed David J. Reed Attorneys for Defendants PHH Mortgage Corporation and Citibank National Association, as Trustee for GSAA Home Equity Trust 2007-9 Case 2:15-cv-03213-BRO-E Document 51 Filed 03/06/17 Page 16 of 16 Page ID #:697 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA – WESTERN DIVISION ATIKUR R. KHAN and RUBYNA KHAN, as individuals, Plaintiffs, v. PHH MORTGAGE CORPORATION, a New Jersey Corporation; CITIBANK, National Association, AS TRUSTEE FOR GSAA HOME EQUITY TRUST 2007-9; AZTEC FORECLOSURE CORPORATION, a California Corporation, and all persons or entities unknown claiming any legal or equitable right, title, estate, lien or interest in the property described in this complaint adverse to Plaintiff's title thereto, and Does 1 through 25, inclusive, Defendants. CASE NO. 2:15-CV-03213-BRO-E [PROPOSED] ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS THE FIRST, THIRD, AND SEVENTH CLAIMS OF THE SECOND AMENDED COMPLAINT [Defendants’ Motion to Dismiss the First, Third, and Seventh Claims of the Second Amended Complaint; and Request for Judicial Notice filed concurrently] DMEAST #27572681 v1 [PROPOSED] ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS THE FIRST, THIRD, AND SEVENTH CLAIMS OF THE SECOND AMENDED COMPLAINT Case 2:15-cv-03213-BRO-E Document 51-1 Filed 03/06/17 Page 1 of 2 Page ID #:698 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Having considered the Motion of Defendants PHH Mortgage Corporation and Citibank National Association, as Trustee for GSAA Homes Equity Trust 2007-9’s (“Defendants”) to dismiss the First, Third and Seventh Claims of the Plaintiffs’ Second Amended Complaint, and any response thereto, the Court hereby GRANTS the Motion. The First, Third and Seventh claims of Plaintiffs’ Second Amended Complaint are DISMISSED WITH PREJUDICE. IT IS SO ORDERED. DATED: _____________________________________ The Honorable Beverly Reid O’Connell United States District Judge DMEAST #27572681 v1 2 [PROPOSED] ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS THE FIRST, THIRD, AND SEVENTH CLAIMS OF THE SECOND AMENDED COMPLAINT Case 2:15-cv-03213-BRO-E Document 51-1 Filed 03/06/17 Page 2 of 2 Page ID #:699