Opinion
Case No. CV 15-02614 DDP (FFMx)
06-09-2015
ELISEO V. BARRAGAN, an individual; MARIA GUZMAN, an individual, ELISEO VARGAS, JR., an individual; MARYCHUY VARGAS, an individual; ELISEO V. VARGAS as guardian ad item for A.V., a minor; AGENLINA VARGAS, an individual and as guardian ad litem for M.P, a minor, A.P., a minor, and L.L. a minor, MIRTHA AYALA, an individual and as guardian ad litem for R.H., Jr. a minor and P.H., a minor , Plaintiffs, v. DEUTSCHE BANK NATIONAL TRUST COMPANY, as Trustee, in Trust for Registered Holders of Long Beach Mortgage Loan Trust 2006-WL2, Asset-Backed Certificates, Series 2006-WL2, a banking business entity; SELECT PORTFOLIO SERVICING, a banking business entity, Defendants.
ORDER RE DEFENDANTS' MOTION TO DISMISS
[Dkt. No. 7.]
Presently before the Court is Defendants' motion to dismiss. (Dkt. No. 7.) Having heard oral arguments and considered the parties' submissions, the Court adopts the following order.
I. BACKGROUND
Plaintiff Barragan is the resident/owner of 4615-4615 3/4 Saint Charles Place, Los Angeles, CA 90019. (Compl., ¶ 18.) The mortgage on the property was secured by a deed of trust, initially held by JPMorgan Chase Bank and later transferred to Defendant U.S. Bank. (Id. at ¶ 19.) Several times between 2011 and 2014, Plaintiff fell behind on his mortgage payments and received notices of Defendant's intent to sell the property, based on Plaintiff Barragan's default. (Id. at ¶¶ 20-33.) Each time, Plaintiff Barragan immediately contacted the bank to make arrangements to bring his payments current. (Id.)
On or shortly after March 6, 2014, Plaintiff Barragan received another such notice; he then submitted an application for a loan modification, as he alleges he was advised to do by Defendants. (Id. at ¶ 33-34.) On August 15, 2014, Defendant Select Portfolio Servicing ("SPS") sent him a letter stating that it was reviewing Plaintiff's account "for loss mitigation assistance," including loan modification. The letter announced that SPS would "continue the foreclosure process" while reviewing the account, but that "NO FORECLOSURE SALE WILL BE CONDUCTED AND YOU WILL NOT LOSE YOUR HOME during the evaluation." (Compl., Ex. 1.) On September 25, 2014, SPS sent another letter explaining that it had not received all the documents needed for its evaluation and was therefore "clos[ing] this request for review." (Id., Ex. 2.) That letter also stated that Plaintiff Barragan had thirty calendar days to "contact SPS to discuss the reason for non-approval," and that no foreclosure sale would occur during the 30-day window. (Id.)
On September 26, 2014, however, Defendants did conduct a foreclosure sale. (Compl., ¶ 39.) Plaintiff Barragan alleges that sometime shortly thereafter, one of his tenants on the property refused to pay rent because of the foreclosure sale. (Id. at ¶ 40.) On October 1, 2014, Plaintiff filed an unlawful detainer action against the tenant. (Id. at ¶ 41.) The tenant's defense to the unlawful detainer action was that Plaintiff was not the owner of the property. On November 1, a judge denied Plaintiff Barragan's claim on the ground that he was not the record owner of the property. (Id. at ¶ 43.)
On October 21, 2014, Plaintiff filed for bankruptcy. (Id. at ¶ 44.) The Complaint seems to indicate that at that time he was unaware that the foreclosure sale had taken place and acted in reliance on Defendants' representation that no foreclosure sale would take place. (Id.) Defendant Deutsche Bank then obtained relief from the automatic stay in the bankruptcy and evicted the residents from the property on January 8, 2015. (Id. at ¶¶ 46-51.) Also on January 8, Plaintiff Barragan's bankruptcy plan was not confirmed by the bankruptcy judge, because Plaintiff was no longer the owner of the property. (Id. at ¶ 52.) On January 9, 2015, Plaintiff Barragan alleges, a representative of Defendant SPS admitted that "it was wrong for them to have foreclosed" and told him the foreclosure sale would be rescinded. (Id. at ¶ 54.) Plaintiffs filed this action in state court on January 20, 2015. (Compl. at 1.) The sale was rescinded on March 25, 2015. (Defs.' RJN, Ex. 13.) This action was removed to federal court on April 8, 2015. (Dkt. No. 1.)
II. LEGAL STANDARD
In order to survive a motion to dismiss for failure to state a claim, a complaint need only include "a short and plain statement of the claim showing that the pleader is entitled to relief." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 55 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint must include "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) (quoting Twombly, 550 U.S. at 570). When considering a Rule 12(b)(6) motion, a court must "accept as true all allegations of material fact and must construe those facts in the light most favorable to the plaintiff." Resnick v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000).
III. DISCUSSION
A. Judicial Estoppel
As an initial matter, Defendants contend that Plaintiff Barragan is judicially estopped from bringing any of his claims, because he did not list his claims as assets in his bankruptcy. Plaintiffs argue, however, that he is not estopped, because the present claims were filed with this Court several months after the bankruptcy was filed.
"Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position." Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001). A party is judicially estopped if the two positions asserted are "clearly inconsistent," a court actually accepted and relied on the earlier position, and the party would either receive an unfair advantage or impose an unfair detriment on the opposing party by asserting the inconsistent positions. Id. at 782-83.
Specifically, a party who files for bankruptcy but fails to list a pending legal claim among his assets has asserted inconsistent claims before the bankruptcy court and the other court, and may be estopped from pursuing his legal claim. Id. at 784. Nor does the legal claim have to be filed prior to the filing of the bankruptcy to be estopped: "Judicial estoppel will be imposed when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy, but fails to amend his schedules or disclosure statements to identify the cause of action as a contingent asset." Id. (emphasis added).
In this case, it is undisputed that Plaintiff Barragan did not include any notice of his legal claims in his bankruptcy petition. Barragan alleges that he did not actually know at the time he filed the petition that Defendants had proceeded to the foreclosure sale. Nonetheless, he must have known of the sale by November 1, 2014, when the state court ruled against him in the unlawful detainer action - or at the very latest by November 5, 2014, when Deutsche Bank filed for relief from the bankruptcy court's automatic stay. He knew of facts related to his causes of action as to the evictions by January 8, 2015. He certainly knew all the relevant facts when he filed this action on January 20, 2015. Yet to date, nearly six months later, Plaintiff Barragan does not seem to have amended his bankruptcy schedules to reflect this lawsuit.
The parties do not brief, and the Court does not at this point determine, whether Barragan immediately had constructive knowledge of the foreclosure sale based on recordation.
On the other hand, there has not yet been a decision in the bankruptcy case; thus, it is not clear that Plaintiff Barragan has yet obtained an unfair advantage in the bankruptcy by failing to disclose this suit. The bankruptcy court has continued the hearing in his case to June 24, 2015. (Bankruptcy Case No. 2:14-bk-29876-SK, Dkt. No. 27.) Thus, the bankruptcy court does not appear to have "accepted" Plaintiff Barragan's representations yet, nor has he yet received a confirmed bankruptcy plan based on those representations.
The Court therefore orders as follows: if Plaintiff Barragan does not amend his bankruptcy schedules to reflect any and all claims he wishes to pursue in this case before the bankruptcy court confirms a bankruptcy plan, the Court will consider his claims estopped and will dismiss at that time, on an appropriate and timely motion by Defendants. If he does amend his bankruptcy schedules before any decision by the bankruptcy court on his bankruptcy plan, he may proceed with his claims.
B. Standing As To Other Plaintiffs
Defendants argue that the Plaintiffs other than Barragan do not have standing to bring these claims, because "all of the claims raised in the Complaint are predicated upon the contractual relationship between Plaintiff Barragan and Defendants." (Defs.' Mem. P. & A. at 6.) This is not quite true: the wrongful eviction, interference with contract, and negligence claims are not directly predicated on that relationship and could, in a theoretical sense, stand as independent torts. As to the other claims, however, Defendants are correct.
Plaintiffs assert that they do have standing, because they were "foreseeable victims, were forced from their home, and were damaged thereby." (Opp'n at 8:16-18.) Plaintiffs cite no authority that these facts, even if shown, give them standing. To establish standing, "the plaintiff must have suffered an 'injury in fact'—an invasion of a legally protected interest." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).
The alleged agreement between Barragan and Defendants cannot provide that legally protected interest: "It is a general rule of law that before recovery can be had under a contract by a third party, he must show that the contract was made for his direct benefit." Williams v. Fenix & Scisson, Inc., 608 F.2d 1205, 1208 (9th Cir. 1979). No facts have been alleged to show that the agreement, if any, was for the other Plaintiffs' benefit specifically, rather than Barragan's benefit as a homeowner, or that Defendants knew that it was for their benefit.
Or, more likely, quasi-contract. See Part III.C., infra.
"A third party . . . has an enforceable right by reason of a contract made by two others . . . if the promised performance will be of pecuniary benefit to him and the contract is so expressed as to give the promisor reason to know that such benefit is contemplated by the promisee as one of the motivating causes of his making the contract." Williams v. Fenix & Scisson, Inc., 608 F.2d 1205, 1208 (9th Cir. 1979) (emphasis added).
Similarly, the consumer protection statutes cited in the Complaint operate for the benefit of homeowners, and Plaintiffs have cited no authority to show that they should be extended to provide a private right of action to renters.
Finally, the non-Barragan Plaintiffs are also not entitled to a quiet title action or a wrongful foreclosure action, as they are not the owners of the property in question.
On all causes of action except wrongful eviction, interference with contract, and negligence, Plaintiffs other than Barragan do not have standing in this case.
C. Breach of Contract Claim
Plaintiffs allege that Defendants were "contractually obligated" not to foreclose on the property, both because of the existence of certain consumer protection statutes and because of the letters SPS sent to Plaintiff Barragan averring that there would be no sale and he would not lose his home. (Compl., ¶¶ 57-59.)
In California, a plaintiff asserting breach of contract must prove 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. Maldonado, 158 Cal.App.4th 1226, 1239, 70 Cal.Rptr.3d 667 (2008). "Under California law, the essential elements for a contract are (1) parties capable of contracting; (2) their consent; (3) a lawful object; and (4) sufficient cause or consideration. U.S. ex rel. Oliver v. Parsons Co., 195 F.3d 457, 462 (9th Cir. 1999).
Here, there was no contract. Consumer protection statutes, though they form part of the background of a lawful contract, do not create a contract out of thin air. As to the letters, they also do not create a contract, because there is no consideration. Even assuming SPS promised not to initiate a foreclosure sale, it received nothing of benefit from Plaintiff Barragan in exchange for that promise. Plaintiffs state that Barragan "has performed and was ready, willing, and able to perform all acts required . . . as stated in the SPS letters," (Compl., ¶ 60), but they do not identify any such acts that would have benefitted SPS (as opposed to mere procedural requirements for a loan modification). There is thus no consideration alleged, and thus no valid contract alleged.
The Court also notes that the letters were sent by SPS and do not appear to include Deutsche Bank either by name or by implication. Thus, apart from the above considerations, the letters cannot have created a contract binding Deutsche Bank.
However, Plaintiffs allege Plaintiff Barragan's good-faith reliance on SPS's promises in the letters. (E.g., Opp'n at 7:14-20.) It appears, therefore, that the Complaint is attempting to plead the elements of a quasi-contract or promissory estoppel claim. The Court will not attempt to divine the details of that claim at present; it is enough to note that it does not appear futile for Plaintiffs to attempt to amend their complaint to state such a claim.
The Court therefore holds that there is no breach of contract claim and dismisses the first cause of action, but with leave to amend to state a claim for promissory estoppel regarding reliance on the letters.
D. Wrongful Foreclosure
The basic elements of a tort cause of action for wrongful foreclosure are as follows:
(1) the trustee or mortgagee caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale . . . was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering.Miles v. Deutsche Bank Nat'l Trust Co., 236 Cal. App. 4th 394, 408 (2015). The plaintiff must also show that "no breach of condition or failure of performance existed on the mortgagor's or trustor's part which would have authorized the foreclosure or exercise of the power of sale." Id. Wrongful foreclosure is a tort, and tort damages are recoverable for all proximately-caused injuries to the plaintiff, including lost equity, moving expenses, lost rental income, damage to credit, emotional distress, and punitive damages. Id. at 409.
Here, plaintiff alleges an illegal or willfully oppressive sale, based on the same reliance theory advanced in the contract claim above. Had Plaintiff and Defendants reached a formal agreement to modify the loan and bring the payment current, Defendants could not have lawfully foreclosed. Barroso v. Ocwen Loan Servicing, LLC, 208 Cal. App. 4th 1001, 1017 (2012). What the effect is of an informal promise not to foreclose after closure of the review process is less clear. But "[a] foreclosure sale . . . can be set aside if the beneficiary or assignor gives false and misleading information to the trustor that prevents a cure of the default before the foreclosure sale." 4 Harry D. Miller & Marvin B. Starr, Cal. Real Est. § 10:254 (3d ed., 2000). Here, Plaintiff Barragan alleges that Defendants essentially provided false and misleading information about how much time he had before the foreclosure sale would take place.
See also, e.g., Wade v. Markwell & Co., 118 Cal. App. 2d 410, 428-29, 258 P.2d 497, 507 (1953) (pledgor could maintain action for conversion against pledgee who promised that pledgor could redeem property "any time within the succeeding week," then sold the property before the week was out).
Plaintiff Barragan can also allege harm, because, as noted above, damages in an action for wrongful foreclosure are not limited to the equity in the home (which in this case was presumably restored when the sale was rescinded) but can also encompass moving expenses, lost rental income, and so on.
Thus, the key question is whether Plaintiff met his obligations under the tender rule and the performance rule. Despite the somewhat confusing terminology, the requirement that the plaintiff "tender[] the amount of the secured indebtedness" does not necessarily mean that he must tender the entire amount of the loan. Numerous cases define the tender required as "the amount due to cure any default in the obligation to defendant." Munger v. Moore, 11 Cal. App. 3d 1, 8 (Ct. App. 1970). See also Onofrio v. Rice, 55 Cal. App. 4th 413, 424 (1997); Garcia v. World Sav., FSB, 183 Cal. App. 4th 1031, 1043 (2010); Miller v. Washington Mut. Bank FA, 776 F. Supp. 2d 1064, 1069 (N.D. Cal. 2011); Barroso v. Ocwen Loan Servicing, LLC, 208 Cal. App. 4th 1001, 1017 (2012).
There is a competing line of cases that holds the opposite, stating an apparently absolute rule that the mortgagor must pay the entire amount of the debt. See, e.g., Arnolds Mgmt. Corp. v. Eischen, 158 Cal. App. 3d 575, 578 (1984) ("It is settled that an action to set aside a trustee's sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security.") But that line of cases ignores the maxim that tender is not required when it would be inequitable to do so. Onofrio, 55 Cal. App. 4th at 424. It also ignores Cal. Civ. Code § 2924c, which provides that mortgagors may avoid nonjudicial foreclosure by tendering the amount in default. Section 2924c expresses a clear legislative preference for borrowers to keep their homes if they can tender the amount necessary to cure the default. For judges to nonetheless allow lenders or trustees to wrongfully or fraudulently foreclose, with no penalty unless the borrower can, for some reason, tender the amount of the mortgage in full, would seem to be an extraordinary invitation to lenders to behave unjustly.
Indeed, the equitable "exceptions and qualifications" to the tender rule are so numerous that some courts have found that they militate "against a blanket requirement of the tender rule at the pleading stage." Tamburri v. Suntrust Mortgage, Inc., No. C-11-2899 EMC, 2011 WL 6294472, at *5 (N.D. Cal. Dec. 15, 2011).
Presumably borrowers would not borrow if they could pay the purchase price of the home in full, so the requirement that they do so when a lender or trustor wrongfully forecloses borders on the absurd.
Here, Plaintiff Barragan alleges that he "[i]mmediately . . . contacted Deutsche Bank and SPS to make arrangements to bring the monthly mortgage payment current." (Id.) Plaintiff alleges that he was "ready, willing, and able to perform" but that he was advised by Defendants to submit a loan application instead. (Id. at ¶¶ 33, 68.) Where a trustee has refused the tender of the amount due, "the trustor may recover damages from the trustee." Moeller v. Lien, 25 Cal. App. 4th 822, 832 (1994).
Defendants argue that Plaintiff Barragan cannot make out a claim for wrongful foreclosure, because on the facts alleged he had failed to perform by not paying the monthly mortgage payments. (Compl., ¶ 33 (admitting that monthly payments were not "current" at the time the foreclosure sale notice was issued).) But the point of the performance rule, as the Miles court explained, is simply to ensure that an otherwise valid sale is not voided for merely technical violations. 236 Cal. App. 4th at 409. To read it as a bar based on failure to actually pay, where the trustor or lender has effectively declined to accept payment and has misled the borrower as to how much time is available to him to take action to cure the default, would, again, produce an inequitable result.
Plaintiff has pled sufficient facts to state a claim for wrongful foreclosure.
E. Consumer Protection Act
Plaintiffs allege that Defendants violated the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. However, Plaintiffs point to no particular section of that act that has been violated, nor to any particular facts supporting an allegation that a violation has occurred.
Plaintiff does allege that Defendants "violated" the Consumer Financial Protection Bureau and the "National Mortgage Settlement (NMS) Act." As to the former, it is hard to see how a government agency can be violated. As to the latter, the Court assumes this refers to the consent decree commonly referred to as the "National Mortgage Settlement," see United States et al. v. Bank of America et al., No. 12-cv-00361-RMC (D.D.C. April 4, 2014). However, in the absence of citations or anything other than the most minimal or conclusory argument in either the complaint or the opposition, (see Opp'n at 9), the Court declines to attempt to discern how that settlement relates to this case.
This cause of action is therefore dismissed.
F. California Home Owner Bill of Rights
Plaintiffs allege that Defendants violated the anti-"dual tracking" provisions of the Home Owner Bill of Rights ("HOBR"), which provides that:
If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower's mortgage servicer, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee's sale, while the complete first lien loan modification application is pending.Cal. Civ. Code § 2923.6(c).
Defendants argue that Plaintiff Barragan cannot allege a violation of HOBR's anti-dual tracking provision for two reasons. First, he is not a borrower under HOBR, because he "has filed a case under Chapter . . . 13 of Title 11 of the United State code" and "the bankruptcy court has not entered an order closing or dismissing the bankruptcy case." Cal. Civ. Code § 2920.5(c)(2)(C). Second, Defendants allege Plaintiff Barragan did not submit a "complete application" for the loan modification.
Plaintiff was a "borrower" for purposes of alleging a violation of the anti-dual tracking provision of the HOBR. On the facts alleged in the complaint, Plaintiff was not in a bankruptcy proceeding when he applied for the modification, nor when the notice of sale was recorded, nor even when the sale took place. See McLaughlin v. Aurora Loan Servs., LLC, No. SACV 13-01653 JVS RN, 2015 WL 1926268, at *7 (C.D. Cal. Apr. 28, 2015) (plaintiff who filed bankruptcy was "borrower" under the statute because "neither of her bankruptcy petitions were pending when she sought loan modifications"); Withers v. J.P. Morgan Chase Bank N.A., No. C 14-0351 SBA, 2014 WL 3418367, at *5 (N.D. Cal. July 11, 2014) (plaintiff was "borrower" under the statute because "both bankruptcy cases were dismissed prior to the recording of the Notice of Trustee's Sale"). That Plaintiff Barragan later filed a bankruptcy case is irrelevant to whether the foreclosure and sale violated HOBR.
As to whether Plaintiff Barragan submitted a "complete application," that is a factual question that is better resolved later. "[A]n application shall be deemed 'complete' when a borrower has supplied the mortgage servicer with all documents required by the mortgage servicer within the reasonable timeframes specified by the mortgage servicer." Cal. Civ. Code § 2923.6(h). At the moment, Plaintiff Barragan alleges that he "began the process of a loan modification" and that "SPS acknowledged receipt of the loan modification." (Compl., ¶¶ 33-34.) The Court cannot determine from Plaintiff's exhibits (Compl., Exs. 1, 2) what documents were required, nor what the timeframe was for supplying them. Although Plaintiff's exhibits indicate that SPS informed Plaintiff he had not submitted sufficient documentation, (id., Ex. 2), that determination by an interested party is not enough by itself to conclusively show that Plaintiff cannot state a plausible claim for relief under the anti-dual tracking statute. For purposes of the present motion, the Court finds that Plaintiff has alleged, albeit minimally, that he submitted a complete application.
Plaintiff Barragan adequately states a claim for violation of the anti-dual tracking provision of the HBOR.
G. Quiet Title
A complaint for an action to quiet title must plead, inter alia, "the adverse claims to the title of the plaintiff against which a determination is sought." Cal. Civ. Proc. Code § 761.020(c). The complaint alleges that the "current title owner and purchase of the Property appears to be Defendant, Deutsche Bank." (Compl., ¶ 95.) However, judicially noticeable public records show, and Plaintiff admits, that the sale was subsequently rescinded. (Defs.' RJN, Ex. 13; Opp'n at 9.) Thus, the claim would appear to be moot.
Additionally, Plaintiff Barragan has not alleged that he has paid the debt secured by his mortgage. A mortgagor "cannot quiet his title against the mortgagee without paying the debt secured." Lane v. Vitek Real Estate Indus. Grp., 713 F. Supp. 2d 1092, 1103 (E.D. Cal. 2010).
This claim is therefore dismissed.
H. Wrongful Eviction
California recognizes the tort of wrongful eviction. Barkett v. Brucato, 122 Cal. App. 2d 264, 275 (1953). That tort is understood to be "a nontrespassory invasion of another's interest in the private use and enjoyment of land if . . . the invasion the invasion is either . . . intentional and unreasonable; or . . . unintentional and otherwise actionable under the rules governing liability for negligent, reckless or ultrahazardous conduct." Id. at 274-75. Generally, the claim lies where the plaintiff vacates the premises within a reasonable time. Nativi v. Deutsche Bank Nat'l Trust Co., 223 Cal. App. 4th 261, 292 (2014).
The tort is usually applied in cases where a landlord engages in self-help or otherwise behaves badly toward his tenants in an effort to get them to leave. Nonetheless, "[a]lthough wrongful eviction can refer to eviction of a tenant or purchaser and be based in contract, it can also refer to an action that is not based in contract as, for example, the eviction of a trespasser." Stanford Ranch, Inc. v. Maryland Cas. Co., 89 F.3d 618, 628 (9th Cir. 1996). The key inquiry is whether the defendant "tortiously evict[ed] another from property if the other had some right to be there." Id.
Plaintiffs do not point to any authority applying this tort to the use of the foreclosure process. However, in Campos v. Bank of Am., Inc., the court found that plaintiffs alleging a deficient foreclosure sale could also allege wrongful eviction, inasmuch as they were forced to leave the property to avoid an action for unlawful detainer. No. C 11-0431SBA, 2011 WL 2600888, at *5-6 (N.D. Cal. June 30, 2011).
Additionally, Plaintiffs allege that there was at least one non-family, paying tenant. A bona fide tenant does not lose his rights of occupancy after a foreclosure, except under certain circumstances defined by statute. Protecting Tenants at Foreclosure Act of 2009, PL 111-22, May 20, 2009, 123 Stat 1632, 1660-61 ("In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to . . . the rights of any bona fide tenant . . . under any bona fide lease entered into before the notice of foreclosure . . . ."). See also Cal. Civ. Proc. Code § 1161b(b). Although the complaint does not identify the non-family tenant, the complaint could be amended to do so, and the statutory protections for preexisting tenants could likewise form an alternative basis for the wrongful eviction claim as to that tenant.
I. Negligence
Plaintiffs have not identified any particular legally cognizable duty that Defendants owed them that would give rise to a negligence claim. "[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 Assn., 231 Cal. App. 3d 1089, 1096 (1991). Only where the lender "actively participates" in the financed activity "beyond the domain of the usual money lender" does a duty of care arise. Id. Plaintiffs have not alleged that Deutsche Bank or SPS actively participated in the use or leasing of the mortgaged homes. Rather, Defendants' activities as alleged have been limited to the "conventional role" of a lender: servicing a mortgage loan and reviewing the loan for modification. See Carbajal v. Wells Fargo Bank, N.A., No. CV 14-7851 PSG PLAX, 2015 WL 2454054, at *5-6 (C.D. Cal. Apr. 10, 2015) (reviewing cases and concluding there is no duty of care in reviewing loan modification applications).
A fortiori, of course, a lender does not owe a duty of care to third parties, even if they are negatively affected by actions on the loan.
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The negligence claim is therefore dismissed.
J. Interference With Contract
"The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." Pac. Gas & Elec. Co. v. Bear Stearns & Co., 50 Cal. 3d 1118, 1126 (1990).
Plaintiffs allege that Defendants interfered with Plaintiff Barragan's contract with his tenant when they foreclosed, because the tenant ceased paying rent when Plaintiff Barragan was no longer the record owner of the property. (Compl., ¶¶ 40-43, 107-12.) The Court notes that the first element of the tort, if satisfied at all, is satisfied only with a great deal of guesswork and assumption on the Court's part. The complaint does not appear to identify Plaintiff Barragan's tenant, calling him or her only "the one non-family tenant." (Id. at ¶ 40.) Nor does the complaint explicitly allege a valid lease contract, though perhaps the allegation that there is a "tenant" includes, by implication, an allegation of a lease contract.
But the more fundamental flaw in Plaintiffs' complaint is that it presents no facts that would allow the inference that the foreclosure was "designed" to interfere with the contract, rather than simply doing so as an incident to the purpose of acquiring the property. Plaintiffs assert that Defendants "knew (or reasonably should have known)" of certain "rental contract agreements for this multi-family 4-plex apartment unit." (Id. at ¶ 108.) Perhaps, given the nature of the property, this is reasonable. But the conclusory assertion that Defendants "deliberately attempted to terminate these agreements," (id. at ¶ 109), without more, is not enough to sustain this claim.
Additionally, there is something strange about an interference with contract claim as to a change of ownership of a rental unit. Presumably, if the foreclosure sale was not wrongful, the fact that it effectively terminates the contractual relationship between the tenant and the former landlord would not be a cause of action in and of itself. Plaintiff Barragan's wrongful foreclosure claim, if successful, can provide a remedy for lost rental income, and that vehicle seems more appropriate for dealing with the consequential damages from an unlawful foreclosure, if unlawful it was.
The claim for interference with contract is dismissed.
K. Declaratory Relief
"[A]ny court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a). Plaintiff Barragan seeks declaratory judgment as to the parties "respective rights and duties . . . and their rights to foreclose and/ownership title to the property." (Compl., ¶ 114.) Although much of the controversy in this case is backward-looking, nothing prevents the Court from determining the rights and duties of the parties going forward. However, in this matter, it is unclear exactly what rights and duties are controverted. Plaintiff states that Defendants "did not have the right to proceed with the September 26, 2014, foreclosure Trustee's Sale" and therefore do not have "the right to claim an ownership interest in the Property." (Id.) But Defendants do not claim an ownership interest in the property; the sale was rescinded. The issue is therefore moot, unless Defendants later lay claim to the property.
The Court dismisses this cause of action, but without prejudice.
IV. CONCLUSION
The Court GRANTS the motion IN PART. The claims for breach of contract, violation of the Consumer Protection Act, quiet title, negligence, interference with contract, and declaratory relief are DISMISSED in their entirety. (The claim for declaratory relief is dismissed without prejudice.) All other claims except the claim for wrongful eviction are dismissed as to Plaintiffs other than Plaintiff Barragan. Plaintiffs are granted LEAVE TO AMEND their complaint to state a claim for promissory estoppel as to Plaintiff Barragan and to identify the non-family tenant as to the wrongful eviction claim. IT IS SO ORDERED. Dated: June 9, 2015
/s/
DEAN D. PREGERSON
United States District Judge