Davey v. Usbancorp et al

Brief in Support re MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

D. Mont.June 9, 2017

Regina J. McClendon (MT State Bar No. 7237) Locke Lord LLP 44 Montgomery Street, Suite 4100 San Francisco, CA 94104 Telephone: 415-318-8810 Fax: 415-707-2186 rmcclendon@lockelord.com ATTORNEYS FOR DEFENDANT U.S. BANK NATIONAL ASSOCIATION (INCORRECTLY SUED AS USBANCORP, D/B/A USBANK) IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MONTANA, GREAT FALLS DIVISION BRAD DAVEY, Plaintiff, v. USBANCORP, D/B/A USBANK, a Delaware Corporation, and JOHN DOES 1-10, Defendants. ____________________________ ) ) ) ) ) ) ) ) ) ) ) ) Cause No. 4:17-cv-00044- BMM-JTJ U.S. BANK NATIONAL ASSOCIATION’S BRIEF IN SUPPORT OF ITS MOTION TO DISMISS PLAINTIFF’S COMPLAINT PURSUANT TO FED. R. CIV. P. 12(B)(6) Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 1 of 14 1 I. INTRODUCTION Brad Davey (“Plaintiff”) asserts claims against defendant U.S. Bank National Association (“US Bank”) relating to the disbursement of insurance proceeds following repairs made to real property located at 64 Serenity Lane, Great Falls, Montana (the “Property”). Plaintiff alleges that US Bank unreasonably delayed in inspecting the Property and disbursing insurance proceeds. As a result, Plaintiff alleges that he was unable to pay the contractors who performed the work, leading them to perfect mechanic liens against the Property. Plaintiff alleges that US Bank declared him in default under the terms of the Deed of Trust due to the perfected mechanic’s liens. As a result of the default, and in order to cure it, Plaintiff alleges that he had to sell his investment property for below fair market value. Plaintiff further alleges that once he sold his investment property and paid off the mechanic’s liens, US Bank disbursed the funds to pay off the remaining contractors. However, Plaintiff apparently was declared in default due to his failure to make all payments under the mortgage loan, not due to additional mechanic’s liens. Though Plaintiff tries to place blame on US Bank, his allegations do not support any claim against it. As discussed in detail below, Plaintiff’s claimed are improperly pled. US Bank respectfully requests that this Court grant its motion to dismiss Plaintiff’s complaint in its entirety. Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 2 of 14 -2- II. STATEMENT OF FACTS On a motion to dismiss, courts accept as true the facts that are properly pleaded in a complaint, but not conclusions of law. Alperin v. Vatican Bank, 410 F.3d 532, 541 (9th Cir. 2005); In re VerifoneSecs. Litig., 11 F.3d 865, 868 (9th Cir. 1993). In resolving a motion to dismiss, courts generally accept as true all material allegations in the complaint, as well as reasonable inferences to be drawn from them. Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). A court, however, need not accept as true any unreasonable inferences, unwarranted deductions of fact, or conclusory legal allegations cast in the form of factual allegations. Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). In addition, “it is proper for the district court to ‘take judicial notice of matters of public record outside the pleadings’ and consider them for purposes of the motion to dismiss.” Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988); accord: Kourtis v. Cameron, 419 F.3d 989, 994 n. 2 (9th Cir. 2005). In keeping with these rules, and without conceding for any other purpose the truth of Plaintiff’s allegations, US Bank sets forth the facts pertinent to this motion. In 2009, Plaintiff obtained a $310,000 loan (“Loan”) from US Bank. Complaint (“Compl.”), ¶ 6. This loan was secured by a deed of trust recorded against the Property. Id.; Request for Judicial Notice (RJN), Exh. 1. Pursuant to Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 3 of 14 -3- the terms of the Deed of Trust, Plaintiff obtained property insurance on the Property. Compl., ¶ 7. On August 14, 2012, Plaintiff alleges that a severe storm structurally damaged the Property, with total damages of $27,082.90. Compl., ¶ 8. Plaintiff alleges that he had repairs completed on the Property within “a few weeks”, restoring the Property to its original condition. Id. Plaintiff alleges that he received the insurance proceeds totaling $27,082.90, which he turned over to US Bank on August 27, 2012, pursuant to the terms of the Deed of Trust. Compl., ¶ 9. Plaintiff alleges that US Bank did not promptly inspect and release the insurance proceeds payments to Plaintiff’s contractors. Compl., ¶ 10. Plaintiff alleges that due to the delay, some contractors perfected mechanic’s liens against the Property, causing US Bank to declare him in default. Id. Plaintiff alleges that he attempted to apply for an interim loan to cure the default but US Bank denied his application. Compl., ¶ 11. In order to prevent default under the terms of the Deed of Trust, Plaintiff alleges that he was forced to sell an investment property for “below fair market value” to avoid foreclosure on the Property. Compl., ¶¶ 12-13. Plaintiff alleges that after he sold his investment property, US Bank released the insurance funds and paid the remaining contractors. Compl., ¶ 14. Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 4 of 14 -4- On April 18, 2016, a Notice of Trustee’s Sale was recorded against the Property, indicating the last payment made under the Loan was September 2015. RJN, Exh. 2. On June 28, 2016, a Cancellation of the Notice of Trustee’s Sale was recorded. RJN, Exh. 3. No foreclosure sale occurred. III. LEGAL ARGUMENT A. Applicable Legal Standard “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Thus, in resolving a Rule 12(b)(6) motion to dismiss, a court engages in a two-prong inquiry. First, a court accepts all well-pled allegations as true, but “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citation omitted). A court is “not bound to accept as true a legal conclusion couched as a factual allegation.” Id. (citation omitted). Nor need a court “accept as true allegations that contradict matters properly subject to judicial notice or by exhibit.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). Second, the court determines whether the well-pled factual allegations are sufficient to “raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555 (citation omitted). “[O]nly a complaint that states a plausible claim for Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 5 of 14 -5- relief survives a motion to dismiss.” Iqbal, 556 U.S. at 679. “[W]here the well- pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]’-‘that the pleader is entitled to relief.’” Id. (citing Fed. R. Civ. P. 8(a)(2)). B. Plaintiff’s Claim for Breach of Contract Fails (First Count) Plaintiff asserts a claim for breach of contract based on an allegation that US Bank “retain[ed] the insurance proceeds for an unreasonable period of time, failed to conduct an inspection of completion promptly or within reasonable time, and failed to disburse insurance proceeds…within reasonable time.” Compl., ¶ 16. Plaintiff’s claim fails for two reasons. First, Plaintiff has not alleged any facts to show that the US Bank failed to conduct inspections, retained insurance proceeds, and disbursed insurance proceeds in a “reasonable” amount of time. As an initial matter, Plaintiff does not allege when US Bank was informed that repairs of the Property were completed. Plaintiff also fails to allege any facts as to when US Bank disbursed the proceeds, when the contractors perfected the mechanic’s liens against the Property, or when he was “required” to sell his investment property to pay off said mechanic’s liens. Bell Atlantic Corp. v. Twombly, supra, 550 U.S. at 555 (“a formulaic recitation of the elements of a cause of action will not do.”). His claim fails for this reason alone. Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 6 of 14 -6- Second, assuming arguendo that the inspections and disbursement of insurance proceeds were done in an unreasonable amount of time, Plaintiff cannot maintain a breach of contract action because he himself defaulted on the Loan. A party who is in material breach of a contract may not sue the other party for breach. AAA Construction of Missoula, LLC v. Choice Land Corp., CLR Properties, Inc., 362 Mont. 264, 271 (2011) (Montana law “prevents a party in material breach from maintaining a breach of contract action against the other contracting party.”). As noted above, a Notice of Trustee’s Sale was recorded against the Property due to Plaintiff’s failure to make mortgage payments. See RJN, Exh. 2. Further, Plaintiff does not allege in the complaint that he was not in material breach. Plaintiff’s failure to make all mortgage payments is a material breach of the deed of trust and prevents him from suing US Bank for breach of contract. C. Plaintiff Has Not Properly Pled A Claim for Unfair Practices (Second Count) Under the Montana Consumer Protection Act (“MCPA”), MCA §30-14-101 et seq., “[a]n unfair act or practice is one which offends established public policy and which is either immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.” Rohrer v. Knudson, 349 Mont. 197, 205 (2009). However, Plaintiff’s claim fails as he has not alleged any conduct “which offends established public policy and which is either immoral, unethical, oppressive, Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 7 of 14 -7- unscrupulous or substantially injurious.” As noted above, Plaintiff does not allege any facts demonstrating any unfair practices: Plaintiff does not allege when US Bank was informed that repairs of the Property were completed, when US Bank disbursed the proceeds, when the contractors perfected the mechanic’s liens against the Property, or when he was required to sell his investment property to pay off said mechanic’s liens. As such, Plaintiff does not state any facts demonstrating US Bank’s conduct somehow offends established public policy, or any immoral, unethical, oppressive, unscrupulous or substantially injurious. As such, Plaintiff has not stated a claim for violation of the MCPA, and this Court should grant US Bank’s motion to dismiss as to this claim. D. Plaintiff Has Not Properly Pled a Claim For Breach of Covenant of Good Faith and Fair Dealing (Third Count) Pursuant to MCA § 28-1-211, “the conduct required by the implied covenant of good faith and fair dealing is honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” See First Sec. Bank & Trust of Miles City v. VZ Ranch, 247 Mont. 453, 457 (1991). Again, Plaintiff claims that US Bank violated the implied covenant by retaining the insurance proceeds for an unreasonable period of time, failing to conduct an inspection of completion promptly or within reasonable time, and failing to disburse insurance proceeds within a reasonable time. Compl., ¶¶ 24-25. Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 8 of 14 -8- However, again, Plaintiff fails to plead any facts to suggest any dishonest or unreasonable commercial behavior on US Bank’s part. As noted above, Plaintiff does not allege when US Bank was informed that repairs of the Property were completed. Plaintiff also fails to allege any facts as to when US Bank disbursed the proceeds, when the contractors perfected the mechanic’s liens against the Property, or when he was required to sell his investment property to pay off said mechanic’s liens. Bell Atlantic Corp. v. Twombly, supra, 550 U.S. at 555 (“a formulaic recitation of the elements of a cause of action will not do.”). As pled, Plaintiff’s complaint suggests no dishonest or unreasonable commercial behavior, as US Bank did, indeed, disburse the funds and paid off contractors. His claim fails for this reason alone. It is not clear from the Complaint whether Plaintiff intends to assert tortious breach of the implied covenant of good faith and fair dealing, but if he does, the claim must fail for additional reasons. In order to state a claim for a tortious breach of the implied covenant of good faith and fair dealing, the parties must have been involved in a “special relationship,” the existence of which is a question of law. Morrow v. Bank of Am., 375 Mont. 38, 46 & 48, fn.1 (2014). To plead a special relationship, the following elements must be alleged: (1) the contract must be such that the parties are in inherently unequal bargaining positions; [and] (2) the motivation for entering the contract must be a non-profit motivation, i.e., to secure peace of mind, security, future Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 9 of 14 -9- protection; [and] (3) ordinary contract damages are not adequate because (a) they do not require the party in the superior position to account for its actions, and (b) they do not make the inferior party “whole”; [and] (4) one party is especially vulnerable because of the type of harm it may suffer and of necessity places trust in the other party to perform; and (5) the other party is aware of this vulnerability. Story v. City of Bozeman, 242 Mont. 436, 451 (1990), overruled on other grounds. Plaintiff does not allege any of the five above factors, let alone any facts to support them. Plaintiff’s claim fails for this reason. As such, Plaintiff has not pled a claim for breach of the implied covenant of fair dealing, nor a claim for tortious breach of the implied covenant of fair dealing. The Court should grant US Bank’s motion to dismiss as to this claim. E. Plaintiff Has Not Pled A Claim For Unjust Enrichment (Count Five) Plaintiff’s unjust enrichment claim must fail as there is an express contract between the parties. The doctrine of unjust enrichment is an equitable means of preventing one party from benefiting from his or her wrongful acts. Owen v. Skramovsky, 372 Mont. 531, 536 (2013). However, the doctrine of unjust enrichment only applies in instances where there is no express contract. See e.g., Owen, supra at 536 (“Because the parties did not enter into a written contract, the District Court concluded the doctrine of unjust enrichment applied.”); Welu v. Twin Hearts Smiling Horses, Inc., 386 Mont. 98, 109 (2016) (“…courts have applied the Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 10 of 14 -10- doctrine of unjust enrichment when a contract in law is implied by the facts and circumstances of the case, but no actual contract exists between parties.”) Here, Plaintiff admits there is a contract between the parties, specifically, the Deed of Trust. Compl., ¶ 6. The Deed of Trust contains express provisions related to insurance proceeds and the disbursement upon completion of repair work. See RJN, Exh. 1, ¶ 5. Plaintiff’s purported claim for failure to timely inspect the repair work and disbursement of funds is directly governed by the Deed of Trust. As such, Plaintiff cannot recover under a theory of unjust enrichment, as there is an express contract between the parties. Furthermore, Plaintiff’s claim must fail as Plaintiff cannot recover the damages requested in the Complaint; even if Plaintiff could recover under the theory of unjust enrichment, he would only be entitled to restitution. See Robertus v. Candee, 205 Mont. 403, 408 (1983) (“The theory of unjust enrichment requires that a person who has been unjustly enriched at the expense of another must make restitution to the other.”) (citations omitted). Despite a purported delay in inspection and disbursement of funds, Plaintiff alleges that US Bank did, indeed, disburse the insurance proceeds. As such, Plaintiff’s allegations admit that US Bank no longer holds the proceeds that Plaintiff could recover in restitution. Further, to the extent that Plaintiff is claiming restitution related to the interest US Bank may have earned from holding the insurance proceeds, such a claim must Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 11 of 14 -11- fail, as Plaintiff expressly agreed that US Bank would not be required to pay interest on any insurance funds held. RJN, Exh. 1, ¶ 5. F. Plaintiff Has Not Pled a Claim For Breach of Fiduciary Duty (Count Six) Plaintiff’s claim for breach of fiduciary duty must fail, as Plaintiff fails to plead any facts suggesting US Bank owed him any duty. The existence of a duty is a question of law for determination by the court. Fisher v. Swift Transp. Co., 342 Mont. 335, 340 (2008). “In Montana, the relationship between a bank and its customer is generally described as that of debtor and creditor, and does not give rise to fiduciary responsibilities.” McCoy v. First Citizens Bank, 335 Mont. 1, 9 (2006). “A limited exception to this rule exists, however, when special circumstances place a bank beyond the role of a simple creditor and into the role of advisor.” Id. (citation omitted); see also Coles Dept. Store v. First Bank, 240 Mont. 226, 230 (1989) (no fiduciary relationship where there was “no evidence that the bank acted as a financial advisor in some capacity other than that common to a usual arms-length debtor/creditor relationship.”). A bank goes beyond this role only when it gives advice “other than that common in the usual arms-length debtor/creditor relationship.” Coles Dept. Store, 240 Mont. at 229. Here, there are no allegations that US Bank has done anything beyond its ordinary role, let alone that it took the role of an advisor. There are no allegations Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 12 of 14 -12- of advice other than that common in the usual arms-length debtor/creditor relationship. Indeed, Plaintiff’s allegations indicate that US Bank acted within the usual arms-length debtor/creditor relationship: Plaintiff claims that he turned over the insurance proceeds to US Bank, pursuant to the Deed of Trust, US Bank disbursed the insurance proceeds. Plaintiff presents no factual allegations demonstrating that US Bank provided any advice related to the insurance proceeds. Plaintiff does not allege that US Bank told him to apply for an interim loan, nor does he allege that US Bank provided any advice regarding the disbursement of insurance proceeds. As a result, Plaintiff has not pled the existence of a duty. Even if Plaintiff could plead the existence of a duty (which he cannot), Plaintiff has not pled any breach by US Bank. Plaintiff claims that US Bank breached its duty to him by failing to inspect the Property and disbursing insurance proceeds for the repair work. Compl., ¶¶ 32, 34. However, Plaintiff’s own allegations undercut these accusations, as Plaintiff alleges that US Bank, did, indeed, disburse the insurance funds, as it paid off the contractors who had not filed liens against the Property. Compl., ¶ 14. For both of these reasons, Plaintiff’s claim for breach of fiduciary duty should be dismissed. IV. CONCLUSION Case 4:17-cv-00044-BMM-JTJ Document 12 Filed 06/09/17 Page 13 of 14 -13- For all of these reasons, US Bank respectfully requests that this Court grant its Motion to Dismiss Plaintiff’s Complaint in its entirety. Dated: June 9, 2017 Respectfully submitted, LOCKE LORD LLP By: /s/ Regina J. McClendon Regina J. McClendon ATTORNEYS FOR DEFENDANT U.S. BANK NATIONAL ASSOCIATION (INCORRECTLY SUED AS USBANCORP D/B/A USBANK) CERTIFICATE OF COMPLIANCE Pursuant to L.R. 7.1(d)(2), the undersigned certifies that the word count is 2,916 words (excluding caption, certificates of service and compliance, table of contents and authorities, and exhibit index). 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