The Honorable Philip S. Gutierrez, United States District Judge

CIVIL MINUTES - GENERAL

Present: The Honorable Philip S. Gutierrez, United States District Judge Wendy Hernandez
Deputy Clerk Not Reported
Court Reporter Attorneys Present for Plaintiff(s): Not Present Attorneys Present for Defendant(s): Not Present

Proceedings (In Chambers): Order GRANTING Motion to Dismiss

Before the Court is Defendant Wells Fargo Bank, N.A.'s ("Wells Fargo") motion to dismiss the Second Amended Complaint ("SAC"). See Dkt. # 21. The Court finds this matter appropriate for decision without oral argument. See Fed. R. Civ. P. 78(b); L.R. 7-15. After considering the arguments in the supporting and opposing papers, the Court GRANTS the motion.

I. Background

The Court discussed the factual circumstances of this case in its previous Order granting Defendant's motion to dismiss the First Amended Complaint ("FAC") (see Dkt. # 19), so the Court will only recount the case's background as altered or relevant to the remaining claims at issue in this motion. This case involves Wells Fargo's handling of Plaintiff's loan modification applications.

On October 26, 2006, Plaintiff Rosanne Carbajal ("Plaintiff") executed a Note and Deed of Trust in favor of World Savings Bank, FSB ("WSB"), and received a residential loan in the amount of $310,000. See SAC ¶ 10. The loan was secured by real property commonly known as 19914 Rainbow Way, Cerritos, California 90703 (the "Property"). Id. ¶¶ 3, 10.

Around January 2009, Plaintiff suffered economic hardship and fell behind in payments on the Note. See SAC ¶ 13. On October 23, 2009, Plaintiff entered into a loan modification agreement with Wachovia, WSB's successor-in-interest. See id. ¶ 14. Shortly afterward, in November 2009, Wachovia Mortgage, FSB ("Wachovia") merged with Wells Fargo. See RJN, Ex. F, G; SAC ¶ 16.

Plaintiff complied with the terms of the modification agreement for a period of approximately three years, but, in 2012, Plaintiff fell behind in payments again. See id. ¶¶ 15-16.

Plaintiff first requested review for a Home Affordable Modification Program ("HAMP") modification in February of 2012. Id. ¶ 51. Wells Fargo informed Plaintiff that it never received that application. Id. ¶ 52.

Around August 2012, Plaintiff called Wells Fargo, seeking assistance. Id. ¶ 16. Wells Fargo asked Plaintiff a number of questions, including questions about her income. Id. After hearing Plaintiff's responses, the Wells Fargo representative told Plaintiff that she did not qualify for assistance. Id. Wells Fargo then initiated foreclosure in December of 2012. Id.

Subsequent to being informed that she did not qualify for assistance, Plaintiff nonetheless continued to try to obtain a loan modification. According to the SAC, in February 2013, and again in April 2013, Wells Fargo represented that it would review Plaintiff's loan modification application. Id. ¶ 43. On February 18, 2013, Plaintiff submitted a complete loan modification to Wells Fargo through her attorneys. Id. ¶ 53. When an attorney's staff member inquired about the status of the application, a Wells Fargo representative named "Cody" stated that the February 2013 application had not been reviewed or examined. Id. ¶ 54. Plaintiff pleads that Wells Fargo "lost" this application. Id. ¶ 60.

In April 2013, Plaintiff's attorney resubmitted the loan modification on Plaintiff's behalf. Id. ¶ 55. According to the SAC, Wells Fargo accepted and agreed to review this application. Id. ¶ 60. Plaintiff's attorneys checked the application status from time to time and were told that the application was in review. Id. ¶ 56. In June 2013, Wells Fargo informed Plaintiff that she did not meet the requirements for a HAMP modification because she had "withdrawn her request for assistance by not returning the required documents." Id. ¶ 57. When Plaintiff's attorney's assistant contacted Wells Fargo in October 2013, Wells Fargo stated that the financial information was now outdated and that it wanted to restart the review process, beginning with an in-person financial interview. Id. ¶ 58.

At this point, Plaintiff determined that pursuing a loan modification through Wells Fargo's administration was hopeless due to its losing or failing to review her previous applications. Id. ¶ 59.

On April 15, 2014, Plaintiff received a Notice of Default and, on July 21, 2014, she received a Notice of Trustee's Sale. See RJN, Ex. I, J.

On August 22, 2014, Plaintiff filed the present lawsuit and Wells Fargo subsequently removed. See Dkt. #1. After Wells Fargo moved to dismiss Plaintiff's complaint (Dkt. # 8), Plaintiff filed an FAC asserting seven causes of action. See Dkt. # 11. In ruling on Wells Fargo's motion to dismiss the FAC, the Court dismissed all seven causes of action, allowing Plaintiff leave to amend five of the claims. Dkt. # 19.

In Plaintiff's SAC, she reasserts the following four causes of action: (1) negligent misrepresentation; (2) negligence; (3) violation of California Civil Code § 2923.7; and (4) violation of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200. See Dkt. # 20. Wells Fargo moves to dismiss the SAC in its entirety. See Dkt. # 21.

II. Legal Standard

A motion to dismiss under Rule 12(b)(6) tests whether the complaint "contain[s] sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). When deciding a Rule 12(b)(6) motion, the court must accept the facts pleaded in the complaint as true, and construe them in the light most favorable to the plaintiff. Faulkner v. ADT Sec. Servs., Inc., 706 F.3d 1017, 1019 (9th Cir. 2013); Cousins v. Lockyer, 568 F.3d 1063, 1067-68 (9th Cir. 2009). The court, however, is not required to accept "legal conclusions...cast in the form of factual allegations." W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981); see Iqbal, 556 U.S. at 678; Twombly, 550 U.S. at 555.

After accepting all non-conclusory allegations as true and drawing all reasonable inferences in favor of the plaintiff, the court must determine whether the complaint alleges a plausible claim to relief. See Iqbal, 556 U.S. at 679-80. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged...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." Id. at 678 (citing Twombly, 550 U.S. at 556).

III. Discussion

The Court will address each cause of action in turn.

A. Negligent Misrepresentation

In the Court's earlier Order, it dismissed Plaintiff's negligent misrepresentation claim because the FAC did not plead any misrepresentations made by Wells Fargo, only those made by WSB or Wachovia, Wells Fargo's predecessors, which were preempted by the Home Owner Loan Act ("HOLA"). See Dkt. # 19 at 3-6. In her SAC, Plaintiff identifies alleged misrepresentations attributable to Wells Fargo. Thus, the Court will analyze whether these new allegations sufficiently make out a claim for negligent misrepresentation.

The elements of a cause of action for negligent misrepresentation are the same as the elements of a claim for fraud, except that the defendant need not actually have known that the representation was false when it was made: To state a cause of action for negligent misrepresentation, plaintiffs must allege (1) the misrepresentation of a past or existing fact; (2) without reasonable ground for the defendant believing the statement to be true; (3) with the intent to induce another's reliance; (4) justifiable reliance on the misrepresentation; and (5) resulting damages. Glenn K. Jackson Inc. v. Roe, 273 F.3d 1192, 1200 n.2 (9th Cir. 2001); Cutler v. Rancher Energy Corp., (C.D. Cal. Mar. 11, 2014) ("Unlike fraud...a person who makes false statements, honestly believing that they are true, may still be liable for negligent misrepresentation if he or she has no reasonable grounds for such belief.") (citing Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 158 Cal. App. 4th 226, 243 (2007)).

Plaintiff identifies Wells Fargo's "misrepresentation" as representing that it "would review Plaintiff's loan modification application in February 2013 and again in April 2013." See SAC ¶ 43; Opp. 5:10-15. In fact, Plaintiff alleges, Wells Fargo never reviewed Plaintiff's application. SAC ¶ 43. Wells Fargo argues that a "promise to review" is not actionable under a negligent misrepresentation theory. See Mot. 11:3-5. The Court agrees. The first element of a negligent misrepresentation claim requires misrepresentation of a "past or existing fact," not a future fact. See Glenn K. Jackson, 273 F.3d at 1200 n.2. A "false statement regarding [a defendant's] intention to perform a future act...is properly characterized as a negligent false promise claim, which is not an actionable claim." See Starcity Capital, LLC v. Bio-Matrix Scientific Group, Inc., No. 13-CV-1394 BEN (WMC), 2014 WL 851067, at *5-6 (S.D. Cal. Mar. 3, 2014); see also Motohouse Int'l LLC v. PPG Indus. Inc., No 09-CV-1265 L (JMA), 2010 WL 476652, at *2 (S.D. Cal. Feb. 4, 2010) (dismissing a negligent misrepresentation claim based on a promise to do something in the future) (citing Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App. 4th 153, 158-59 (1991)).

Plaintiff has not pled that Wells Fargo misrepresented a past or existing fact; therefore, her negligent misrepresentation claim fails.

Further, Plaintiff has not indicated that Wells Fargo made any misrepresentations other than these statements relating to how it would handle her modification applications. In her opposition brief, Plaintiff requests leave to amend only to plead the circumstances of these "future conduct" representations with more particularity, which would not cure the claim's fundamental defect. In light of the futility of amendment and the fact that the SAC is Plaintiff's third attempt to plead this claim, the Court concludes that leave to amend is not appropriate.

Accordingly, the Court GRANTS the motion to dismiss Plaintiff's negligent misrepresentation claim, without leave to amend.

B. Negligence

Plaintiff asserts that Wells Fargo was negligent in the processing, administration, and review of her loan modification applications. See SAC ¶¶ 65-82, 32. To make out a claim for negligence, a plaintiff must plead four elements: duty, breach, causation, and damages. See Marlene F. v. Affiliated Psych. Med. Clinic, Inc., 48 Cal. 3d 583, 588 (1989).

Previously, the Court bypassed the disputed issue of whether lenders owe borrowers a duty of care when considering loan modification applications and dismissed the negligence claim on causation grounds. See Dkt. # 19 at 6-7. Although the Court continues to perceive some causation deficiencies in Plaintiff's SAC, the Court will now address the negligence claim on the threshold issue of duty.

The California Courts of Appeal have reached different conclusions as to 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 14-4195 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). Thus, while courts agree that lenders do not owe a duty to offer or approve a loan modification, they disagree as to whether a lender owes a duty of care in the review of applications once it has agreed to consider them. See Alvarez, 228 Cal. App. 4th at 944-51.

"[A]s 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 scope of its conventional role as a mere lender of money." Nymark v. Heart Fed. Sav. & Loan Ass'n, 231 Cal. App. 3d 1089, 1096 (1991). "Liability to a borrower for negligence arises only when the lender actively participates in the financed enterprise beyond the domain of the usual money lender." Id. (internal quotations omitted); see also Wagner v. Benson, 101 Cal. App. 3d 27, 35 (1980) (describing "active participation" in a financed enterprise as something requiring "extensive control and shared profits").

In Lueras, the court recognized these principles and "conclude[d] [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." Lueras, 221 Cal. App. 4th at 67. A lender's obligations regarding loan modification "are created solely by the loan documents, statutes, regulations, and relevant [agency ] directives and announcements[,]" not by general negligence law. Id. Accordingly, the Lueras court held that plaintiff's lender and servicer "did not have a common law duty of care to offer, consider, or approve a loan modification, or to offer [plaintiff] alternatives to foreclosure." Id. (emphasis added).

The court in Alvarez disagreed with this conclusion. See Alvarez, 228 Cal. App. 4th at 944-51. Although some district courts have attempted to reconcile the holdings in Lueras and Alvarez by limiting the holding in Lueras or distinguishing the manner in which lenders review or handle particular modification applications, see Segura, 2014 WL 4798890, at *13; Guillermo, 2015 WL 1306851, at *5-7, this Court agrees with the courts that interpret the two cases' holdings as irreconcilable, see, e.g., Chiu v. NBS Default Servs., LLC, No. 14-CV-5261-EDL, 2015 WL 1221399, at *5 (N.D. Cal. Mar. 17, 2015) ("There is a split of authority in California state courts as to whether a lender owes a duty of care in processing a loan modification application.").

In Alvarez, the court recounts the Lueras reasoning and holding then summarizes the reasoning and holding of a different case, Garcia v. Ocwen Loan Servicing, LLC, No. C 10-290 PVT, 2010 WL 1881098 (N.D. Cal. May 10, 2010), in which the court imposed a duty of care on a lender that undertook to review a loan for potential modification. Alvarez, 228 Cal. App. 4th at 946-48. The Alvarez court announced that it was persuaded by the Garcia court's reasoning. Id. at 948. In Lueras, the court cited Garcia when surveying district courts that had concluded that lenders might owe a duty of care in negotiating or processing loan modification applications, a conclusion the Lueras court ultimately rejected. Lueras, 221 Cal. App. 4th at 65. The Lueras facts, in which the lender informed plaintiff that it was reviewing his modification documents then sent plaintiff contradictory communications and became nonresponsive, demonstrate that the court ruled on the lender's obligations "in the handling of [plaintiff's] application for a loan modification[.]" Id. at 58-59, 62-63 (plaintiff alleged the lender and servicer "breached their duty of care by 'failing to timely and accurately respond to customer requests and inquiries,' and by 'failing to...use consistent methods to determine modification approvals'..."). Whereas the court in Alvarez held that lenders have a "duty to use reasonable care in the processing of a loan modification," Alvarez, 228 Cal. App. 4th at 948-51, the Lueras court concluded that lenders do not owe a duty of care when considering modification, Lueras, 221 Cal. App. 4th at 65.

The California Supreme Court has not spoken on this issue, and this Court agrees with the reasoning in Lueras. The Court fails to discern how considering an application for the renegotiation of loan terms could fall outside the scope of a lender's "conventional role as a lender of money." See Nymark, 231 Cal. App. 3d at 1096. In a modification application mishandling case, there is no "active participation" in the borrower's financed enterprise that demonstrates that the lender is acting outside the scope of conventional arms-length lending activity. See id. at 1096-97 (concluding that appraising property as collateral is conduct within the scope of conventional lending, but suggesting that a lender might exceed those bounds if it "induce[s] plaintiff to enter the loan transaction or [] assure[s] him that his collateral [i]s sound"); Wagner, 101 Cal. App. 3d at 31-32, 35 (financing a borrower's cattle herd purchase and requiring maintenance payments based on comparisons of the herd's value to the borrower's loan obligation is "[n]ormal supervision of the enterprise for the protection of [the lender's] security interest in the loan collateral" and falls "far short of the extensive control and shared profits which give rise to liability" in negligence); cf. Connor v. Great Western Sav. & Loan Ass'n, 69 Cal. 2d 850, 864 (1968) (When a lender "voluntarily undertook business relationships with [a city and developer] to develop [tract housing] and to develop a market for the tract houses in which prospective buyers would be directed to [the lender] for their financing...[the lender] became much more than a lender content to lend money at interest on the security of real property. It became an active participant in a home construction enterprise...[and] had the right to exercise extensive control of the enterprise.").

Many of the cases that recognize a duty to carefully consider loan modification applications have side-stepped this aspect of financial lending negligence jurisprudence and relied on analysis of the specific loan transaction under the "Biakanja factors," a multi-factor framework for determining whether a duty of care exists when individuals are not in contractual privity. See Connor, 69 Cal. 2d at 865 (explaining that, in the absence of "privity of contract," a duty to exercise ordinary care not to injure another "may arise out of a voluntarily assumed relationship if public policy dictates the existence of such a duty" and citing the Biakanja factors as a test for determining whether the duty exists). If the Biakanja analysis is appropriate, the Court continues to adhere to its determination that lenders do not owe borrowers a duty of care when considering loan modification applications because the harm to borrowers in the modification context is only remotely connected to lenders. See Lueras, 221 Cal. App. 4th at 67 ("If the modification was necessary due to the borrower's inability to repay the loan, the borrower's harm, suffered from denial of a loan modification, would not be closely connected to the lender's conduct. If the lender did not place the borrower in a position creating a need for a loan modification, then no moral blame would be attached to the lender's conduct."); see also Guillermo, 2015 WL 1306851, at *7. The fundamental harm that a borrower experiences in the foreclosure context is loss of property and the root cause of that harm is the borrower's inability to make agreed-upon loan payments in a timely manner. While the "missed opportunity" to delay or prevent the loss of property can be cast as a derivative harm, it is strange to impose a negligence duty on lenders to carefully review modification applications when there is no such tort duty to approve applications as a result of that review.

The Court concludes that Wells Fargo was acting as a conventional lender of money when it accepted and considered applications seeking to modify Plaintiff's loan terms; therefore, Wells Fargo did not owe Plaintiff a duty of care when reviewing the applications. Accordingly, the Court GRANTS the motion to dismiss the negligence claim, without leave to amend.

C. Cal. Civ. Code § 2923.7

In the Court's previous Order dismissing the FAC, the Court dismissed Plaintiff's claim that Wells Fargo violated Cal. Civ. Code § 2923.7, a provision of the California Homeowner Bill of Rights ("HBOR"), Cal Civ. Code §§ 2920, et seq., because Plaintiff never requested a "single point of contact" ("SPOC") for communication regarding the foreclosure process and prevention alternatives. See Dkt. # 19 at 8. This Court interprets the plain language of § 2923.7 to require a borrower to request a SPOC before the servicer is required to establish one. Id. The Court explicitly indicated that Plaintiff's FAC failed to state a claim for violation of § 2923.7 because she did not allege that she requested a SPOC. Id. Because the SAC again fails to allege that Plaintiff requested a SPOC, the Court GRANTS the motion to dismiss the § 2923.7 claim, this time without leave to amend.

D. UCL

Plaintiff's final claim is for violation of the UCL. SAC ¶¶ 77-82. Plaintiff claims that each of the unlawful and wrongful acts alleged in the SAC, including the violations of HBOR alleged in the SAC, constitute unfair business practices and are forbidden by law. Id. ¶ 78. The allegations comprising Plaintiff's UCL claim are those that the Court has already analyzed throughout this motion.

The UCL prohibits any "unlawful, unfair, or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. Because the statute is written in the disjunctive, it prohibits three separate types of unfair competition: (1) unlawful acts or practices, (2) unfair acts or practices, and (3) fraudulent acts or practices. Cel-Tech Commc'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999). To succeed on a UCL claim under any of these theories, a plaintiff must establish that the defendant engaged in a prohibited practice, and that as a result of the defendant's actions, he or she suffered actual injury. Marolda v. Symantec Corp., 672 F.Supp.2d 992, 1003 (N.D. Cal. 2009).

An "unlawful" business practice under the UCL is any business practice that is prohibited by a federal, state, or local law, whether "civil or criminal, statutory or judicially made." McKell v. Wash. Mut., Inc., 142 Cal. App. 4th 1457, 1474 (2006) (citations omitted). Plaintiff has failed to plead any violation of a statutory or common law theory in her other causes of action, as discussed throughout this order, and does not assert any additional unlawful acts specific to her UCL claim. See SAC ¶ 78. Thus, Plaintiff fails to state a claim under the UCL's unlawful prong.

A "fraudulent" business practice under the UCL is "one which is likely to deceive the public," and "may be based on representations to the public which are untrue, and also those which may be accurate on some level, but will nonetheless tend to mislead or deceive." McKell, 142 Cal. App. 4th at 1471. The practices pled in the SAC which could reasonably be construed as "likely to deceive the public" are those involving an alleged scheme devised by WSB to induce the public to enter into mortgages for which they were not qualified in order to profit off of the resulting defaults. See SAC ¶¶ 32-38. These allegations revolve around loan origination acts conducted by WSB. Because this Court has already determined that the acts committed by WSB regarding Plaintiff's loan origination and modification are preempted by HOLA, allegations concerning WSB's actions cannot form the basis of a fraudulent UCL claim. See Dkt. # 19.

A business practice is "unfair" under the UCL "if it violates established public policy or if it is immoral, unethical, oppressive, or unscrupulous and causes injury to consumers which outweighs its benefits." McKell, 142 Cal. App. 4th at 1473 (emphasis added). Plaintiff's claim is based on allegations of inadequate loan modification review and assistance. See SAC ¶ 80. This claim fails because Plaintiff has not pled that Wells Fargo's conduct regarding the loan modification process caused her any injury. The SAC indicates that Plaintiff did not qualify for loan assistance due to inadequate income, see id. ¶ 16; therefore, even if Wells Fargo had carefully maintained and reviewed her application and promptly communicated with her throughout the review process, Wells Fargo would not have approved her application. Accordingly, Wells Fargo's conduct did not cause Plaintiff to lose her Property or miss an opportunity to prevent loss of the Property through a loan modification. Since "[t]here is no causation 'when a complaining party would suffer the same harm whether or not a defendant complied with the law,'" Plaintiff's claim fails. See Do v. American Home Mortg. Serv., Inc., No SACV 11-324-JST (JCGx), 2011 WL 5593935, at *5 (C.D. Cal. Nov. 17, 2011) (quoting Daro v. Super. Ct., 151 Cal. App. 4th 1079, 1099 (2007)).

Because Plaintiff's allegations do not comprise an actionable claim under the UCL prongs and Plaintiff does not indicate that she intends to plead additional facts, the Court GRANTS the motion to dismiss Plaintiff's UCL claim, without leave to amend.

IV. Conclusion

For the foregoing reasons, the Court GRANTS the motion to dismiss in its entirety, without leave to amend. The Court DISMISSES Plaintiff's claims for negligent misrepresentation, negligence, violation of Cal. Civ. Code § 2923.7, and violation of the UCL, with prejudice.

IT IS SO ORDERED.