Opinion
Case No. 11-6431-SC
02-26-2013
RICHARD SOWINSKI, Plaintiff, v. WELLS FARGO BANK, N.A., and DOES 1-10, Defendants.
ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO
DISMISS SECOND AMENDED
COMPLAINT AND GRANTING
MOTION TO EXPUNGE LIS
PENDENS
I. INTRODUCTION
Plaintiff Richard Sowinski ("Plaintiff") challenges Defendant Wells Fargo Bank, N.A.'s ("Wells Fargo") foreclosure of his residential mortgage and the subsequent trustee sale of his residence. In connection with this action, Plaintiff recorded a lis pendens against the subject property. Now before the Court is Wells Fargo's motion to dismiss Plaintiff's Second Amended Complaint ("SAC") and motion to expunge the lis pendens. ECF Nos. 39 (Motion to Dismiss ("MTD")), 41 (Motion to Expunge ("MTE")). The motions are fully briefed. ECF Nos. 45 ("Opp'n"), 46 ("Reply ISO MTD"); 47 ("Reply ISO MTE"). Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution without oral argument. For the reasons set forth below, Wells Fargo's motion to dismiss is GRANTED in part and DENIED in part, and its motion to expunge is GRANTED.
"A lis pendens is recorded by someone asserting a real property claim, to give notice that a lawsuit has been filed which may, if that person prevails, affect title to or possession of the real property described in the notice." Fed. Deposit Ins. Corp. v. Charlton, 17 Cal. App. 4th 1066, 1069 (Cal. Ct. App. 1993). "Once a lis pendens is filed, it clouds the title and effectively prevents the property's transfer until the litigation is resolved or the lis pendens is expunged." BGJ Associates, LLC v. Superior Court, 75 Cal. App. 4th 952, 966 (Cal. Ct. App. 1999).
II. BACKGROUND
On February 3, 2006 Plaintiff and his wife, Mary B. Sowinski borrowed $672,000 from World Savings Bank, FSB ("WSB"). ECF No. 40 (Request for Judicial Notice ("RJN")) Ex. 1. The loan was secured by a deed of trust recorded against Plaintiff's residence in Walnut Creek, California. RJN Ex. 2 ("DOT"). According to judicially noticeable correspondence from federal banking regulators, WSB later changed its name to Wachovia Mortgage, FSB, which was subsequently converted to Wells Fargo Bank Southwest, N.A., and then merged into Wells Fargo. RJN Exs. 3, 4.
At the time of the loan transaction, Plaintiff was sixty-eight years old and allegedly suffered from "pre-Alzheimers." ECF No. 38 ("SAC") ¶ 1. Plaintiff alleges that he was intentionally misled as to the terms of the loan transaction. Id. ¶ 9. Specifically, Plaintiff alleges that: (1) WSB falsely represented that the interest rate on the loan was fixed rather than adjustable; (2) WSB falsely stated Plaintiff's income and the value of the property on the loan application; (3) Plaintiff was not permitted to read the loan documents and, "because of his weakened mental state," he could not have understood them if he had. Id. As a result of these alleged misrepresentations, Plaintiff took out a loan he could not afford. Id. ¶ 12.
In January 2008, Plaintiff contacted Wells Fargo about increases to his monthly loan payments. Id. ¶ 25. One of Wells Fargo's agents offered to assist Plaintiff with a loan modification, and, for the next twenty-eight months, Plaintiff submitted and re-submitted loan modification application materials. Id. ¶¶ 25-26. Plaintiff alleges that Wells Fargo never reached a decision on his application. Id. ¶ 26.
On August 18, 2011, a notice of default was recorded with the Contra Costa County Recorder's Office, indicating that Plaintiff was over $46,000 in arrears on his loan. RJN Ex. 5. On September 23, 2011, a substitution of trustee was recorded, substituting NDeX West, LLC as the new trustee. SAC ¶ 18; RJN Ex. 6. The substitution was recorded by "WELLS FARGO BANK, NA SUCCESSOR BY MERGER TO WELLS FARGO BANK SOUTHWEST, NA F/K/A WACHOVIA MORTGAGE." RJN Ex. 6. Plaintiff alleges that Defendants concocted this name "so that it falsely appears as though there was no need for an actual sale/transfer/assignment and that it is the same entity as the originating bank proceeding with foreclosure under the law." SAC ¶ 24.
On December 2, 2011, Plaintiff filed the instant action in California Superior Court, and Wells Fargo timely removed to this Court. ECF No. 1 Ex A. On December 12, 2011, a few days after the action was filed, a trustee's sale was conducted, through which Wells Fargo allegedly sold the property to itself at a below-market price. SAC ¶ 28. According to the trustee's deed upon sale, the total debt at the time of sale was $763,042.60. RJN Ex. 8.
On or about December 13, 2011, an unidentified local agent of Wells Fargo allegedly offered Plaintiff $10,000 if he and his wife would vacate the property by January 2, 2012. SAC ¶ 29. Plaintiff told the agent that he and his wife needed more time and the agent allegedly agreed to give them until January 20, 2012. Id. Wells Fargo initiated unlawful detainer proceedings on January 4, 2012. RJN Ex. 9. There is no mention of the "cash for keys" agreement in the unlawful detainer complaint. See id. Plaintiff allegedly vacated the property on January 15, 2012. SAC ¶ 29. After Plaintiff surrendered his keys, the Wells Fargo agent allegedly revoked the offer because of Plaintiff's pending lawsuit. Id. ¶ 30. Wells Fargo's counsel informed Plaintiff's counsel that Wells Fargo would only pay the $10,000 if Plaintiff agreed to dismiss this action with prejudice. Id. Plaintiff refused this offer. Id. On March 16, 2012, Wells Fargo obtained an unlawful detainer judgment against Plaintiff, RJN Ex. 11, allegedly destroying Plaintiff's credit rating, SAC ¶ 31.
On February 13, 2012, Wells Fargo moved to dismiss the first complaint. ECF No. 11. On February 27, 2012, the response deadline, Plaintiff filed an amended complaint, asserting claims for: (1) quiet title, (2) declaratory relief, (3) injunctive relief, and (4) violation of the California Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200 et seq. ECF No. 14 (First Amended Complaint ("FAC")). After Wells Fargo filed an unopposed motion to dismiss the FAC, the Court dismissed Plaintiff's claims for declaratory relief and injunctive relief with prejudice. ECF No. 37 ("Nov. 26 Order"). The Court dismissed Plaintiff's other two claims with leave to amend. Id. at 3. The Court found that Plaintiff's quiet title claim failed because Plaintiff had not alleged a valid and viable offer of tender. Id. at 4. Plaintiff's UCL claim was dismissed because it was supported by nothing more than "legal conclusions and generalities." Id. Wells Fargo also filed an unopposed motion to expunge the lis pendens, which the Court denied in order to "give Plaintiff one last chance to establish the 'probable validity' of a claim concerning the real estate at issue." Id. at 6.
Sowinski v. Wells Fargo Bank, N.A., 2012 WL 5904711, 2012 U.S. Dist. LEXIS 168198 (N.D. Cal. Nov. 26, 2012).
Plaintiff subsequently amended his complaint a second time. Like the FAC, the SAC asserts claims for quiet title and violation of the UCL. The SAC also asserts three new claims for breach of oral contract, rescission of written contract due to unconscionability, and elder abuse. Wells Fargo now moves to dismiss all five claims pursuant to Federal Rule of Civil Procedure 12(b)(6). Wells Fargo also moves to expunge the lis pendens.
In the SAC, Plaintiff numbers his causes of action as follows: (1) quiet title, (2) breach of oral contract, (3) rescission, (5) elder abuse, and (6) UCL. The Court assumes that the omission of claim four was merely a numbering error and refers to Plaintiff's claims for elder abuse and UCL as claims (4) and (5), respectively.
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III. DISCUSSION
A. Motion Dismiss
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988). "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal, 556 U.S. 662, 664 (2009). However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 663 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). The allegations made in a complaint must be both "sufficiently detailed to give fair notice to the opposing party of the nature of the claim so that the party may effectively defend against it" and "sufficiently plausible" such that "it is not unfair to require the opposing party to be subjected to the expense of discovery." Starr v. Baca, 633 F.3d 1191, 1204 (9th Cir. 2011).
With these principles in mind, the Court turns to each of the claims challenged by Wells Fargo.
1. Quiet Title
Defendants move to dismiss Plaintiff's first cause of action for quiet title on the ground that Plaintiff has once again failed to allege a valid and viable offer of tender. MTD at 4. Plaintiff responds that the tender requirement only applies in cases where a plaintiff alleges defects in the foreclosure process and Plaintiff has made no such allegation here. Opp'n at 10. Plaintiff cites no authority to support this proposition, and the case law holds otherwise. See Ananiev v. Aurora Loan Services, LLC, C 12-2275 SI, 2012 WL 4099568, at *3 (N.D. Cal. Sept. 17, 2012). Further, Plaintiff has in fact alleged deficiencies in the foreclosure process. Specifically, Plaintiff alleges that Wells Fargo's claim to the property is based on a "fraudulent substitution of trustee." FAC ¶ 34.
Plaintiff also argues that he need not tender because he has alleged that the underlying loan transaction was unconscionable. Opp'n at 11. This argument has merit. As the California Court of Appeal held in Lona v. Citibank, N.A., "if the borrower's action attacks the validity of the underlying debt, a tender is not required since it would constitute an affirmation of the debt." 202 Cal. App. 4th 89, 112 (Cal. Ct. App. 2011). Wells Fargo suggests that the Court's November 26 Order somehow precludes Plaintiff from asserting an exception to the tender rule. Mot. at 4; Reply at 1. But nothing in that Order was intended to set aside well-established California law. Wells Fargo also asserts that Lona is inapposite because that case dealt with an equitable cause of action to set aside a trustee's sale, while this case concerns a claim for quiet title. Reply at 2. However, Wells Fargo does not explain why that distinction is significant or why the Court could not construe Plaintiff's claim as an equitable cause of action. Wells Fargo also argues that Lona's discussion of the unconscionability exception should be accorded limited weight since the defendant in that case only lost on the issue because it failed to brief it. Id. at 3. But Wells Fargo fails to address the long line of authority recognizing this particular exception to the tender rule. See, e.g., Shuster v. BAC Home Loans Servicing, LP, 211 Cal. App. 4th 505, 512 (Cal. Ct. App. 2012); Onofrio v. Rice, 55 Cal. App. 4th 413, 424 (Cal. Ct. App. 1997); Stockton v. Newman, 148 Cal. App. 2d 558, 564 (Cal. Ct. App. 1957).
Wells Fargo also argues that Plaintiff's claims of unconscionability are barred by the Home Owners Loan Act ("HOLA"), 12 U.S.C. 1461 et seq. Pursuant to regulations promulgated by the Office of Thrift Supervision ("OTS"), state laws are preempted where they purport to impose requirements regarding "[t]he terms of credit, including amortization of loans and the deferral and capitalization of interest and adjustments to the interest rate, balance, payments due, or term to maturity of the loan . . . ." 12 C.F.R. § 560.2(b)(4). However, state "contract and commercial law," "real property law," and "tort law," among other things, "are not preempted to the extent that they only incidentally affect lending operations . . . or are otherwise consistent with the purpose [of the regulation]." Id. § 560.2(c). Accordingly, "[t]o the extent that [a] [p]laintiff's claims are premised on fraud or promises made by [the lender], such claims are not necessarily preempted, because the only 'requirement' they impose on federal savings banks is that they be held responsible for the statements they make to their borrowers." Rumbaua v. Wells Fargo Bank, N.A., No. 11-1998 SC, 2011 WL 3740828, at *7 (N.D. Cal. Aug. 25, 2011). Such is the case here. Plaintiff alleges that he was given a loan he could not afford because WSB -- Wells Fargo's predecessor-in-interest -- misrepresented his income and the value of his property on a loan application and because WSB lied about the terms of the proposed loan. SAC ¶ 35. Contrary to Wells Fargo's argument, Plaintiff's claim for quiet title does not impose additional requirements on the terms of credit that are included in the the loan agreement. Rather, the claim asserts that the terms of credit were the result of a series of misrepresentations. Such a claim is not preempted by HOLA.
Finally, Wells Fargo argues that, under principles of res judicata, the unlawful detainer action precludes Plaintiff from challenging the validity of the foreclosure sale. It is true that "subsequent fraud or quiet title suits founded upon allegations of irregularity in a trustee's sale are barred by [a] prior unlawful detainer judgment." Malkoskie v. Option One Mortg. Corp., 188 Cal. App. 4th 968, 974 (Cal. Ct. App. 2010) (quoting Vella v. Hudgins, 20 Cal. 3d 251, 256 (Cal. 1977)). Plaintiff's quiet title claim is, in part, predicated on irregularities in the foreclosure sale. See FAC ¶ 34. However, as noted above, it is also based on allegations that Wells Fargo's predecessor-in-interest made a number of misrepresentations during loan origination. Accordingly, to the extent that Plaintiff's claim for quiet title is not predicated on alleged deficiencies in the foreclosure process, it is not precluded by the unlawful detainer judgment.
For these reasons, Wells Fargo's Motion to Dismiss is DENIED as to Plaintiff's first claim for quiet title.
2. Breach of Oral Contract
Plaintiff's second cause of action for breach of oral contract, along with his third and fourth causes of action, were not raised in either of his two prior complaints. After Plaintiff neglected to respond to Wells Fargo's last motion to dismiss, the Court dismissed Plaintiff's first amended complaint with leave to amend so that Plaintiff could cure certain pleading deficiencies. The Court did not grant Plaintiff leave to amend to plead three additional causes of action, nor is there any indication that Wells Fargo consented to these amendments. Accordingly, the amendments are procedurally improper. See Fed. R. Civ. P. 15 (plaintiff may amend once as a matter of course and any other amendments require opposing party's written consent or court's leave). However, as leave to amend should be freely given, id. 15(a)(1)(B)(3), the Court declines to dismiss these new causes of action. Any future amendments which would add new causes of action should be made in accordance with Rule 15.
Plaintiff's second cause of action is predicated on Defendants' alleged breach of an oral agreement to pay Plaintiff $10,000 if he and his wife moved out of the subject property by a certain date. Wells Fargo moves to dismiss on two grounds. First, it argues that the claim is barred by the statute of frauds. MTD at 5. This argument lacks merit. While the statute of frauds clearly applies to agreements for the sale of real property and agreements to pay an indebtedness secured by mortgage upon the property purchased, Cal. Civ. Code § 1624(a)(3), (6), Wells Fargo cites no authority suggesting that it also applies to the type of cash-for-keys agreement at issue here.
Wells Fargo's second argument, that Plaintiff has failed to plead the elements of an oral contract, MTD at 5-6, is more persuasive. According to the SAC, Wells Fargo's agent offered Plaintiff $10,000 to move out of the property by January 2, 2012. SAC ¶ 38. Plaintiff counter-offered, and Wells Fargo's agent allegedly agreed to a January 20, 2012 move-out date. Id. However, it is unclear from the SAC -- and Plaintiff's opposition -- whether there was a meeting of the minds over the counter-offer, i.e., whether the parties agreed that Plaintiff would be compensated for moving out by January 20. Plaintiff has also failed to plead whether the unidentified agent mentioned in the SAC had the authority to make such a deal on behalf of Wells Fargo. Plaintiff's opposition papers aver that Plaintiff confirmed the agent's authority, but the Court cannot consider facts asserted in the opposition without converting Wells Fargo's 12(b)(6) motion into a motion for summary judgment. See United States v. Ritchie, 342 F.3d 903, 909 (9th Cir. 2003).
Accordingly, the Court DISMISSES Plaintiff's claim for breach of oral contract, but GRANTS Plaintiff leave to amend so as to plead the exact terms of the oral contract and the purported agent's authority to enter into the alleged contract.
3. Rescission
Wells Fargo argues that Plaintiff's third cause of action for "rescission of written contract due to uncons[c]ionability pursuant to [California] Civil Code § 1670.5" fails because unconscionability is an affirmative defense, not a cause of action. The Court agrees. Civil Code section 1670.5 provides that a court may refuse to enforce a contract if it finds "the contract or any clause of the contract to have been unconscionable at the time it was made." Cal. Civ. Code § 2670.5(a). Nothing in the statute provides for an independent cause of action. Prevailing case law is in accord. See Rubio v. Capital One Bank, 613 F.3d 1195, 1206 (9th Cir. 2010). Plaintiff cites Lona, 202 Cal. App. 4th at 101, for the contrary proposition, but nothing in that decision suggests that a plaintiff can state an independent claim for unconscionability. In any event, Plaintiff's rescission claim is largely, if not entirely, duplicative of his first cause of action. Compare FAC ¶¶ 45-47 with id. ¶ 35. For these reasons, Plaintiff's rescission claim is DISMISSED WITH PREJUDICE.
4. Elder Abuse
Wells Fargo argues that Plaintiff's fourth claim for elder abuse is time barred. The statute of limitations for financial elder abuse is four years, Cal. Wel. & Inst. Code § 15657.7, and Plaintiff alleges that he entered into the loan transaction in 2006, see SAC ¶ 10, over five years before he filed the instant action.
Plaintiff counters that the statute of limitations has not run because his elder abuse claim relates to ongoing conduct over a series of years, culminating in the breach of the cash-for-keys agreement in January 2011. Opp'n at 16. However, Plaintiff has yet to allege any actionable conduct beyond the misrepresentations Defendants allegedly made in connection with the loan transaction. Plaintiff's allegation that Wells Fargo's actions somehow violated a February 2012 agreement with the Department of Justice is implausible, as all of the events involved in this case pre-date 2012. See SAC ¶ 53. Plaintiff also asserts that Wells Fargo "h[eld] out the possibility of a loan modification and ke[pt] Plaintiff in the process for over 28 months," Opp'n at 16, but fails to explain how this conduct amounted to elder abuse. To the extent that Plaintiff means to plead that Wells Fargo engaged in double-tracking, i.e., purporting to review a loan modification request while at the very same time foreclosing on the property, his allegations amount to little more than legal conclusions. Further, as noted in Section III.A.2 supra, Plaintiff's claim for breach of an oral contract is implausible as pled.
Accordingly, Plaintiff's claim for elder abuse is DISMISSED with leave to amend.
5. UCL
In its November 13 Order granting Wells Fargo's motion to dismiss the first amended complaint, the Court identified a number of defects in Plaintiff's UCL claim, including Plaintiff's failure to (1) identify the prong on which his UCL claim rests, (2) plead fraud with specificity, and (3) specify how his allegations support his UCL claim. Nov. 13 Order at 4-5. Plaintiff attempts to cure the third deficiency by copying and pasting allegations from other parts of the SAC into the UCL section (rather than incorporating the allegations by reference as he did last time), and largely ignores the rest of the Court's guidance. In his opposition brief, Plaintiff assures the Court that he is able to plead more facts. Opp'n at 17. But Plaintiff has already had the benefit of two amended complaints, three motions to dismiss, and one Court order providing specific guidance on this very point. As Plaintiff has failed to follow that guidance, the Court DISMISSES his UCL claim WITH PREJUDICE.
B. Motion to Expunge Lis Pendens
Plaintiff bears the burden of proving that the lis pendens should not be expunged, notwithstanding Wells Fargo being the moving party. Cal. Civ. Proc. Code § 405.30; Cua v. Mortgage Elec. Registration Sys., Inc., No. C 09-01605 SBA, 2012 WL 2792437, at *1 (N.D. Cal. July 9, 2012). "A lis pendens shall be expunged if the court finds either that the pleading on which the notice is based does not contain a real property claim, or that the claimant failed to establish by a preponderance of the evidence the probable validity of the real property claim." Cua, 2012 WL 2792437, at *1.
Wells Fargo's current motion to expunge the lis pendens is almost identical to its last motion to expunge the lis pendens. Compare MTE with ECF No. 19. Once again, Wells Fargo argues that (1) Plaintiff is incapable of bringing a claim that affects title since he cannot tender his debt, and (2) the lis pendens is void because it was not properly served and recorded. As Plaintiff's quiet title claim remains undisturbed, he is clearly capable of bringing a claim that affects the title to the property. See Section III.A.1 supra. However, Plaintiff has failed to respond to Wells Fargo's argument concerning the service and recordation of the lis pendens. In fact, Plaintiff appears to have ignored Wells Fargo's motion to expunge altogether. His opposition brief does not reference the motion, other than in the caption. Since Plaintiff bears the burden of proof in opposing the motion, his failure to respond is fatal to his lis pendens. While the Court was previously inclined to give Plaintiff another chance to establish the "probable validity" of a claim concerning the real estate at issue, Nov. 26 Order at 6, this is now the second time Plaintiff has failed to respond to a motion to expunge.
Accordingly, Wells Fargo's motion to expunge the lis pendens is GRANTED.
V. CONCLUSION
For the reasons set forth above, Defendant Wells Fargo Bank, N.A.'s motion to dismiss Plaintiff Richard Sowinski's second amended complaint is GRANTED in part and DENIED in part.
• Plaintiff's first claim for quiet title remains undisturbed to the extent it is not premised on deficiencies in the foreclosure process.The Court also GRANTS Defendants' motion to expunge the lis pendens. Plaintiff shall file an amended complaint within thirty (30) days of the signature date of this Order. Failure to do so may result in dismissal with prejudice of his causes of action for breach of oral contract and elder abuse. Plaintiff shall comply with Rule 15 prior to asserting any previously unpled causes of action.
• Plaintiff's second claim for breach of oral contract is DISMISSED with leave to amend.
• Plaintiff's third claim for rescission is DISMISSED WITH PREJUDICE.
• Plaintiff's fourth claim for elder abuse is DISMISSED with leave to amend.
• Plaintiff's fifth claim for violation of the UCL is DISMISSED WITH PREJUDICE.
IT IS SO ORDERED.
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UNITED STATES DISTRICT JUDGE