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ruling that a TPP constitutes "an enforceable agreement to grant a permanent loan modification based on the borrower's compliance with the terms therein"
Summary of this case from Nugent v. Fed. Home Loan Mortg. Corp.Opinion
NO. CIV. S-12-0901 LKK/JFM
12-18-2012
CHARLES ALIMENA and CHERYL ALIMENA, Plaintiffs, v. VERICREST FINANCIAL, INC.; CITIMORTGAGE, INC., LSF7 NLP VI TRUST; CR TITLE SERVICES, INC.; LOAN STAR FUND, and DOES 1 through 50, inclusive, Defendants.
ORDER
Plaintiffs Charles and Cheryl Alimena have sued defendants Citimortgage, Inc. ("Citimortgage") and C.R. Title Services, Inc. ("C.R. Title," the "Citi Defendants") and defendants Vericrest Financial, Inc. ("Vericrest"), Lone Star U.S. Acquisitions, LLC ("Lone Star"), and LSF7 NPL VI Trust ("Trust," the "Vericrest Defendants"), alleging that Defendants acted unlawfully in failing to modify their home mortgage and subsequently initiating foreclosure proceedings. Plaintiffs commenced this action on October 6, 2011 by filing a complaint in Sacramento Superior Court. On April 6, 2012, shortly after being named as a "Doe" defendant, Lone Star removed the action to federal court on the basis of diversity jurisdiction. (ECF No. 1.) On May 10, 2012, Plaintiffs filed their First Amended Complaint. ("FAC", ECF No. 11.) The Citi Defendants and the Vericrest Defendants now move to dismiss the FAC under Fed. R. Civ. P. 12(b)(6).
For the reasons stated below, the FAC is dismissed in its entirety, with plaintiffs granted leave to file an amended complaint.
I. FACTS
Plaintiffs' home is located at 4497 McRoberts Drive in Mather, California. (FAC ¶ 14.) In early 2010, Plaintiffs contacted defendant Citimortgage, seeking a modification of their home loan. (FAC ¶ 26.) Citimortgage sent Plaintiffs information regarding the Home Affordable Modification Program ("HAMP"). (FAC ¶ 27.) Plaintiffs were eventually notified in writing that they were entering a Home Affordable Modification Trial Period Plan ("First TPP"). (FAC ¶ 29.) Under the terms of the First TPP, Plaintiffs were to make three monthly payments of $1667.00, beginning in March 2010, and to submit certain documents to Citimortgage. (Id.)
A copy of the First TPP is attached to the FAC as Exhibit 6.
Plaintiffs made the three payments, and in June 2010, made a fourth payment. (FAC ¶ 34.) In May 2010, Citimortgage confirmed that Plaintiffs had submitted all of the required documents. (FAC ¶ 31.) On June 15, 2010, Plaintiffs called Citimortgage to find out the status of their HAMP application, and were told to submit a profit & loss statement. (FAC ¶ 35.) They did so. (FAC ¶ 36.)
Later that month, they were informed by telephone that Citimortgage had received the profit & loss statement, but that their HAMP application had been canceled. They were given no reason for the cancelation. (FAC ¶ 37.) Plaintiffs were merely told that they could submit another HAMP application if they desired. (Id.) They did so. (FAC ¶ 39.)
In early September 2010, Plaintiffs called Citimortgage and confirmed that their HAMP application had been received. (FAC ¶ 40.) In late October, Plaintiffs received a Notice of Default. (FAC ¶ 41.) They called Citimortgage, and were informed that their HAMP application had been denied due to inadequate income, but that they could submit another application. (FAC ¶¶ 41, 43.) After providing Citimortgage with financial information over the telephone, they were told that they could qualify for a loan modification if they sold their 2006 Chrysler 300C. (FAC ¶ 44.) They did so. (FAC ¶¶ 48, 81.)
In late November 2010, Plaintiffs were informed by Citimortgage that they had been prequalified for a HAMP modification. (FAC ¶ 47.) Plaintiffs submitted updated financial information to Citimortgage, including proof of the Chrysler's sale. (FAC ¶ 48, 49.) In January 2011, Plaintiffs were notified that their request for a loan modification had been approved. (FAC ¶¶ 50, 51.) On February 7, 2011, Plaintiffs received a letter from Citimortgage informing them that they were entering a second Home Affordable Modification Trial Period Plan ("Second TPP"). (FAC ¶ 52.) The Second TPP required Plaintiffs to make three monthly payments of $1687.00, beginning in March 2011. (FAC ¶ 52.) They made their first payment. (FAC ¶ 57.)
A copy of a document titled "Your Mortgage Modification" is attached to the FAC as Exhibit 7. It appears to be a printout of a webpage; it reads in pertinent part, "01/21/2011 Your request for lower mortgage payments is approved. Expect your mortgage solution package within the next 5-7 business days."
Attached to the FAC as Exhibit 8 are a copy of a letter from Citimortgage Customer Service to Plaintiffs describing the required trial period payments; a set of frequently asked questions regarding the TPP; a document entitled "Additional Trial Period Plan Information and Legal Notices"; and three payments slips to be mailed in with the trial period payments.
On February 24, 2011, Plaintiffs were informed by Citimortgage that the trustee's sale of their home had been postponed. (FAC ¶ 56.) On March 2, 2011, they were informed that the servicing of their loan had been transferred to defendant Vericrest. (FAC ¶ 57.)
On March 16, 2011, Plaintiffs received a notice from Vericrest stating that defendant Trust now owned their note, and Vericrest was their loan servicer. (FAC ¶ 62.) Plaintiffs called Vericrest that same day, and were informed that Citimortgage had reported to Vericrest that Plaintiffs' HAMP modification had been canceled because they (Plaintiffs) had defaulted. (Id.)
On March 25, 2012, Vericrest notified Plaintiffs over the telephone that their account should have been noted as being subject to a HAMP modification, and to make their second payment. (FAC ¶ 64.) Plaintiffs did so. (FAC ¶ 65.)
On March 28, 2011, Plaintiffs called Vericrest, and were told that they did not qualify for HAMP, and that Vericrest was not bound by any modification offered by Citimortgage. (FAC ¶ 66.) On April 4, 2011, their second payment was returned by mail. (FAC ¶ 68.) The next day, Plaintiffs called Vericrest, and were told they would have to re-apply for a loan modification. (FAC ¶ 69.)
On April 8, 2011, Plaintiffs filed for Chapter 13 bankruptcy protection. (FAC ¶ 70.)
On April 15, 2011, a notice was placed on Plaintiffs' home reading: "This Property Has Gone Through Foreclosure And Is Now Owned By The Mortgage Holder." (FAC ¶ 72.)
Plaintiffs allege that Lone Star has been the sole owner and beneficiary of Plaintiffs' deed of trust since July 2005, and along with Trust, is responsible for Citimortgage's and Vericrest's actions herein. (FAC ¶ 71.) Plaintiffs further allege that the transfer of servicing of their home loan from Citimortgage to Vericrest was for the purpose of denying them a loan modification. (FAC ¶ 72.)
Plaintiffs allege on information and belief that Lone Star owns Citimortgage, Trust, C.R. Title, and Vericrest, and that C.R. Title "purports to be the trustee under the deed of trust [recorded on their home] by virtue of a substitution of trustee dated October 15, 2010." (FAC ¶ 9.)
Plaintiffs have pleaded causes of action for deceit, civil conspiracy, promissory estoppel, breach of contract, breach of the covenant of good faith and fair dealing, bad faith denial of contract, wrongful foreclosure under Cal. Civ. Code § 2924, and violations of Cal. Bus. & Prof. Code § 17200.
II. STANDARD ON MOTION TO DISMISS UNDER FED R. CIV. P. 12(b)(6)
A dismissal motion under Fed. R. Civ. P. 12(b)(6) challenges a complaint's compliance with federal pleading requirements. Under Rule 8(a)(2), a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." The complaint must give the defendant "'fair notice of what the ... claim is and the grounds upon which it rests.'" Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007), quoting Conley v. Gibson, 355 U.S. 41, 47 (1957).
Hereinafter, the term "Rule" refers to the applicable Federal Rule of Civil Procedure.
To meet this requirement, the complaint must be supported by factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Moreover, this court "must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94 (2007).
Citing Twombly, 556 U.S. at 555-56, Neitzke v. Williams, 490 U.S. 319, 327 (1989) ("[w]hat Rule 12(b)(6) does not countenance are dismissals based on a judge's disbelief of a complaint's factual allegations"), and Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) ("it may appear on the face of the pleadings that a recovery is very remote and unlikely but that is not the test" under Rule 12(b)(6)).
"While legal conclusions can provide the framework of a complaint," neither legal conclusions nor conclusory statements are themselves sufficient, and such statements are not entitled to a presumption of truth. Iqbal, 556 U.S. at 678. Iqbal and Twombly therefore prescribe a two-step process for evaluation of motions to dismiss. The court first identifies the non-conclusory factual allegations, and then determines whether these allegations, taken as true and construed in the light most favorable to the plaintiff, "plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at 664.
"Plausibility," as it is used in Twombly and Iqbal, does not refer to the likelihood that a pleader will succeed in proving the allegations. Instead, it refers to whether the non-conclusory factual allegations, when assumed to be true, "allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 663. "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. (quoting Twombly, 550 U.S. at 557). A complaint may fail to show a right to relief either by lacking a cognizable legal theory or by lacking sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).
Twombly imposed an apparently-new "plausibility" gloss on the previously well-known Rule 8(a) standard, and retired the long-established "no set of Facts" standard of Conley v. Gibson, 355 U.S. 41 (1957), although it did not overrule that case outright. See Moss v. U.S. Secret Service, 572 F.3d 962, 968 (9th Cir. 2009) (the Twombly Court "cautioned that it was not outright overruling Conley . . . ." although it was retiring the "no set of Facts" language from Conley). The Ninth Circuit has acknowledged the difficulty of applying the resulting standard, given the "perplexing" mix of standards the Supreme Court has applied in recent cases. See Starr v. Baca, 652 F.3d 1202, 1215 (9th Cir. 2011) (comparing the Court's application of the "original, more lenient version of Rule 8(a)" in Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002) and Erickson v. Pardus, 551 U.S. 89 (2007) (per curiam), with the seemingly "higher pleading standard" in Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005), Twombly and Iqbal), rehearing en banc denied, 659 F.3d 850 (October 5, 2011). See also Cook v. Brewer, 637 F.3d 1002, 1004 (9th Cir. 2011) (applying the "no set of Facts" standard to a Section 1983 case).
III. ANALYSIS
A. Request for Judicial Notice
1. Publicly-recorded documents
Defendants request that the court take judicial notice of the following documents recorded with the Sacramento County Recorder's Office: a Deed of Trust recorded on July 25, 2005; an Assignment of Deed of Trust recorded on October 19, 2010; a Substitution of Trustee recorded on October 19, 2010; a Notice of Default and Election to Sell Under Deed of Trust recorded on October 19, 2010; a Notice of Trustee's Sale recorded on January 20, 2011; an Assignment of Deed of Trust recorded on April 19, 2011; a Trustee's Deed Upon Sale recorded on April 19, 2011; a Notice of Rescission of Trustee's Deed Upon Sale recorded on May 6, 2011; and a Notice of Trustee's Sale recorded on October 11, 2011. (Citi Defendants' Req. for Jud. Not. ("Citi RJN"), Exs. A-H, K, ECF No. 32-1; Vericrest Defendants' Req. for Jud. Not. ("Vericrest RJN"), Exs. 1-7, 11, 13, ECF No. 31-1, 31-2.)
"As a general rule, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion." Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir.2001) (internal quotations and citation omitted). However, a court may consider matters properly subject to judicial notice. Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). A matter may be judicially noticed if it is either "generally known within the territorial jurisdiction of the trial court" or "capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b).
Since these nine documents are publicly recorded, they are capable of accurate determination and may be judicially noticed. See W. Fed. Sav. & Loan Ass'n v. Heflin Corp., 797 F.Supp. 790, 792 (N.D.Cal. 1992) (taking judicial notice of documents in a county's public record, including deeds of trust). Therefore, Defendants' request for judicial notice of these documents is granted.
2. Bankruptcy Court filings
On April 8, 2011, Plaintiffs filed for Chapter 13 bankruptcy protection as joint debtors in the United States Bankruptcy Court for the Eastern District of California, No. 11-28898 ("Bankruptcy Case"). Defendants request that the court take judicial notice of the following documents: the electronic case docket; Plaintiffs' bankruptcy petition; an amended bankruptcy petition; Plaintiffs' statement of income and summary of schedules; and an order of the bankruptcy court dismissing Plaintiffs' case. (Citi RJN, Exs. I, J; Vericrest RJN, Exs. 8-10, 12, 14.)
Filing of an amended petition appears to have been necessary because the initial petition listed the incorrect debtors' names. Plaintiffs argue against taking judicial notice of the initial petition because of this error, but it is relevant, as it shows the date on which the Bankruptcy Case was commenced.
Courts may "take judicial notice of court filings and other matters of public record[, as they] are readily verifiable and, therefore, the proper subject of judicial notice." Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n. 6 (9th Cir. 2006) (internal citation omitted). See also Headwaters Inc. v. United States Forest Service, 399 F.3d 1047, 1051 n. 3 (9th Cir. 2005) (taking judicial notice of the docket of a proceeding in another tribunal). Accordingly, the court will take judicial notice of the docket, Plaintiffs' filings, and the court's order in the Bankruptcy Case.
Plaintiffs object generally to the court taking judicial notice of the contents of these various documents. The court is well aware of the limitations on its ability to accept the truth of matters asserted in materials of which it takes judicial notice and will proceed accordingly. See, generally, 21B Charles Alan Wright & Arthur Miller, Federal Practice and Procedure § 5106.4 ("Facts Judicially Noticeable; Indisputability— 'Ascertainable Facts'—Court Records") (2d ed. 2012).
Plaintiffs' citation to state law in support of these objections is inapt. Although the court is sitting in diversity and applying state law as to substantive matters, judicial notice is governed by the Federal Rules of Evidence and case law interpreting those Rules. See Wray v. Gregory, 61 F.3d 1414, 1417 (9th Cir. 1995) ("[T]he Federal Rules of Evidence ordinarily govern in diversity cases," except "where a state evidence rule is intimately bound up with the rights and obligations being asserted.")
B. Judicial Estoppel
The Vericrest Defendants allege that Plaintiffs are judicially estopped from bringing this action because they failed to disclose the claims herein in any filing made in their Chapter 13 bankruptcy proceeding. According to the Ninth Circuit:
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. This court invokes judicial estoppel not only to prevent a party from gaining an advantage by taking inconsistent positions, but also because of general consideration[s] of the orderly administration of justice and regard for the dignity of judicial proceedings, and to protect against a litigant playing fast and loose with the courts.Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782-783 (9th Cir. 2001) (internal citations and quotations omitted). According to the Supreme Court, courts may consider three factors in deciding whether to bar a party from proceeding under the doctrine. First, that party's later position "must be clearly inconsistent with its earlier position." New Hampshire v. Maine, 532 U.S. 742, 751, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001) (internal citations and quotations omitted). Second, the party must have "succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled." Id. Third, the party "seeking to assert an inconsistent position [may] derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped." Id. These factors are not exhaustive; "[a]dditional considerations may inform the doctrine's application in specific factual contexts." Id. In general, "a party is judicially estopped from asserting a cause of action [in a later proceeding] not raised in a reorganization plan or otherwise mentioned in the debtor's schedules or disclosure statements." Hamilton, 270 F.3d. at 783.
This court has restricted the application of judicial estoppel to cases where the court relied on, or "accepted," the party's previous inconsistent position. The application of judicial estoppel is not limited to bar the assertion of inconsistent positions in the same litigation, but is also appropriate to bar litigants from making incompatible statements in two different cases.
The Vericrest Defendants point out that many courts have recently invoked judicial estoppel to bar plaintiffs who have previously sought bankruptcy protection from subsequently suing on undisclosed unlawful conduct related to foreclosures and/or denial of loan modifications. And, as the Ninth Circuit has noted, the bankruptcy court need not "actually discharge debts before the judicial acceptance prong may be satisfied. The bankruptcy court may 'accept' the debtor's assertions by relying on the debtor's nondisclosure of potential claims in many other ways." Hamilton, 270 F.3d at 784. Examples of such acceptance include a discharge of debt that is later vacated, the lifting of a bankruptcy stay based on nondisclosure of claims, and approval of a debtor's plan of reorganization. Id. But in each of these examples, the petitioners "succeeded in persuading [the bankruptcy] court to accept that party's earlier position" in some way.
By contrast, Plaintiffs' Chapter 13 proceedings seem to have been an utter failure. None of the orders issued by the court appear to have relied on the schedules submitted by Plaintiffs, and at no point did the bankruptcy court confirm their Chapter 13 plan. Instead, the bankruptcy trustee twice moved for an order denying confirmation of Plaintiffs' plan and dismissing the case. In response to the trustee's first motion (Bankruptcy Case, ECF No. 32), for failure to properly notice a motion to value collateral, the bankruptcy court denied confirmation of Plaintiffs' plan. (Bankruptcy Case, ECF No. 38.) In response to the trustee's second such motion (Bankruptcy Case, ECF No. 56), for failure to make required monthly plan payments, the court dismissed Plaintiffs' case. (Bankruptcy Case, ECF No. 59.) The latter order was entered on September 15, 2011. On December 15, 2011, the court discharged the trustee and closed the case. (Bankruptcy Case, ECF Nos. 69, 70.) Plaintiffs do not appear to have filed for bankruptcy protection again.
The court takes judicial notice of the filings in the Bankruptcy Case of its own accord. Fed.R.Evid. 201(c).
Payments are required even before the bankruptcy court considers whether to approve the debtors' plan. According to section 2.01 of form EDC 3-080, entitled "Chapter 13 Plan" (published by the U.S. Bankruptcy Court for the Eastern District of California), "Monthly plan payments must be received by Trustee not later than the 25th day of each month beginning the month after the petition is filed."
There is little doubt that, by asserting claims herein that were not listed in their bankruptcy filings, Plaintiffs have adopted inconsistent positions in the two proceedings. Nevertheless, as the Ninth Circuit has restricted application of judicial estoppel to "cases where the [bankruptcy] court relied on, or 'accepted,' the party's previous inconsistent position," Hamilton, 270 F.3d at 783, and no such reliance or acceptance seems to have occurred, it does not appear that Plaintiffs will "derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped." New Hampshire, 532 U.S. at 751. Accordingly, Plaintiffs' failure to set forth the instant claims in their bankruptcy filings will not estop them from proceeding herein.
C. State law claims under HAMP
Plaintiffs allege state law claims based on Defendants' conduct in handling their trial loan modifications under HAMP.
Defendants counter that, because HAMP does not provide a private right of action, Plaintiffs may not assert state law claims predicated on alleged violations of HAMP.
Neither the Emergency Economic Stabilization Act of 2008, Pub.L. 110-343, 122 Stat. 3765, which created HAMP, nor HAMP's guidelines, give rise to a private right of action under federal law to obtain or enforce a mortgage loan modification under HAMP. Lucia v. Wells Fargo Bank, N.A., 798 F.Supp.2d 1059, 1066 (N.D.Cal. 2011).
Nevertheless, state law claims alleging HAMP violations may be cognizable. Courts have split on this question. See Sutcliffe v. Wells Fargo Bank, N.A., 283 F.R.D. 533 (N.D. Cal. 2012) (conducting national survey of cases and "finding more persuasive the reasoning in the line of cases that has found, at least at the pleading stage, that the [HAMP Trial Period Plan ("TPP")] offers a sufficient basis to show the existence of an enforceable agreement").
It appears that the key point of disagreement in these cases lies in the interpretation of the TPP's terms: does the TPP constitute an enforceable agreement to permanently modify a mortgage (assuming the borrower satisfies the requirements therein), or does the TPP merely set out a process for applying for a permanent loan modification? Courts taking the latter position are of the view that an enforceable agreement does not arise until a permanent loan modification is in place.
One of the earliest cases to assess whether a TPP gives rise to an enforceable contract under California law was decided in this judicial district. See Grill v. BAC Home Loans Servicing LP, No. 10-CV-03057-FCD/GGH, 2011 WL 127891 (E.D.Cal. Jan. 14, 2011) (Damrell, J.) (holding that a TPP does not give rise to an enforceable contract for a loan modification). Former Judge Damrell based his decision on three clauses in the TPP. The first clause provides: "If I am in compliance with this Trial Period Plan...then the Servicer will provide me a...Modification Agreement that would amend...the Loan Documents."
Although the TPP in Grill was issued by BAC Home Loans Servicing LP, and the TPP at issue in this case was issued by defendant Citimortgage, the provisions in question (as well as the provisions considered in the other cases discussed in this section) are largely identical.
The second clause provides:
I understand that the Plan is not a modification of the Loan Documents and that the Loan Documents will not be modified unless and until (i) I meet all of the conditions required for modification, (ii) I receive aThe third clause provides:
fully executed copy of a Modification Agreement.... I further understand and agree that the Servicer will not be obligated or bound to make any modification of the Loan Documents if I fail to meet any one of the requirements under this Plan.
If I comply with the requirements in Section 2 and ... Section 1, the Servicer will [determine the new payment amount and] send me a Modification Agreement for my signature which will modify my Loan Documents ... Upon execution of a Modification Agreement by the Servicer and me, this Plan shall terminate and the Loan Documents, as modified by the Modification Agreement, shall govern the terms between the Servicer and me.According to Judge Damrell, these three clauses, and the TPP as a whole, set forth an application process that the borrower follows in the hopes of obtaining a loan modification. Grill, 2011 WL 127891 at *4. A binding contract for a loan modification arises only when (i) the servicer determines that the applicant has complied with the requirements outlined in the TPP, and (ii) thereafter "send[s the borrower] a modification agreement, including a new monthly payment amount, which both [the borrower and the servicer] would execute." Id. The holding in Grill was endorsed by, among others, the court in Lucia, 798 F.Supp.2d at 1067-68.
Lucia is currently on appeal to the Ninth Circuit. (N.D.Cal. No. 3:10-cv-04749-JSW, ECF No. 58.)
A contrary view is taken in Gaudin v. Saxon Mortg. Services, Inc. , 820 F.Supp.2d 1051 (N.D.Cal. 2011) (Seeborg, J.) (holding that the TPP may give rise to enforceable obligations under California law). Gaudin is careful to distinguish between, on the one hand, the provisions in the TPP that arguably create an enforceable agreement to grant a permanent loan modification, and on the other, the technical requirements for putting in place a permanent loan modification. In Judge Seeborg's view, the TPP "sets out various conditions that must be fulfilled before the lender is obligated to provide a permanent loan modification...the implication is that upon satisfaction of those conditions, the lender will (and must) provide the borrower with a permanent loan modification agreement." Id. at 1053. By contrast, the requirement that the parties both execute a permanent loan modification "are best understood as explaining that the modification will not take legal effect until such a document is signed, but do not serve as a condition precedent to the lender's obligation to provide such an executed document." Id. at 1054 n.5. Conditioning the granting of a permanent loan modification on the servicer's discretion to issue and sign such a document (the position taken by Grill and Lucia, supra), rather than on the borrower's compliance with the TPP's terms, "would render the other apparent promises in the document illusory." Id. at 1054. This view has been endorsed by, among other courts, the Seventh Circuit: "[A] borrower who did all the TPP required of her would be entitled to a permanent modification only when the bank exercised its unbridled discretion to put a Modification Agreement in the mail...turn[ing] an otherwise straightforward offer into an illusion." Wigod v. Wells Fargo Bank, 673 F.3d 547, 563 (7th. Cir. 2012) (finding that borrower had stated breach of contract claim against bank under Illinois law for failure to follow TPP).
The court is persuaded by the reasoning in the line of cases which includes Gaudin and Wigod finding that, at least at the pleading stage, the TPP provides a basis for an enforceable agreement to grant a permanent loan modification based on the borrower's compliance with the terms therein. The alternative is to grant banks, lenders, and loan servicers carte blanche to arbitrarily deny loan modifications despite borrowers' good faith compliance with the TPP's terms and conditions. As the Wigod court put it, if the TPP is unenforceable, a bank "could simply refuse to send a [permanent loan modification agreement] for any reason whatsoever - interest rates went up, the economy went sour, it didn't like [the borrower] - and there would still be no breach." 673 F.3d at 563.
Considering that many borrowers seeking loan modifications are in strained financial circumstances and are desperate to retain ownership of their homes, to hold that lenders may arbitrarily deny permanent loan modifications despite borrowers' good-faith compliance with the TPP would arguably invite those lenders to extract what little money these borrowers have left and then foreclose on their homes.
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Accordingly, the court finds that Plaintiffs herein may allege properly-pleaded state law causes of action against the Defendants for their acts and omissions in connection with HAMP loan modifications. In reaching this conclusion, the court respectfully declines to follow its former colleague Judge Damrell's decision in Grill.
D. Pleading Standards under Rule 8
Turning to Defendants' motions to dismiss, the court is unable to assess their substantive merits because the FAC fails to meet even minimal federal pleading standards.
Under Rule 8(a)(2), a complaint "must contain...a short and plain statement of the claim showing that the pleader is entitled to relief." As noted above, the complaint must give the defendant "'fair notice of what the ... claim is and the grounds upon which it rests.'" Twombly, 550 U.S. at 555 (quoting Conley, 355 U.S. at 47).
The FAC fails to meet the Rule 8 standard. In pleading each of their causes of action, Plaintiffs repeatedly use the generic term "Defendants" to refer to the party allegedly acting. This term encompasses all five of the named defendants herein. Accordingly, it is impossible for the court (and, more than likely, the individual defendants) to determine which defendant is alleged to have done what. For example, Plaintiffs plead a cause of action for promissory estoppel against Citimortgage, Lone Star, and Trust, alleging in pertinent part: "Plaintiffs' reliance on Defendants' representations was reasonable, justified, and foreseeable, as Defendants represented to Plaintiffs that they were the servicer and/or owner of the Subject Loan." (FAC ¶ 121.) But the paragraphs that immediately precede this allegation refer only to Citimortgage's representations regarding a loan modification, and make no reference to any representations by Lone Star or Trust, much less any of the other Defendants. If Plaintiffs wish to proceed against Lone Star or Trust on a promissory estoppel theory, they must make clear what actions each of these defendants undertook to make themselves liable. Plaintiffs must also not inadvertently implicate Vericrest or C.R. Title through use of the term "Defendants," as occurs dozens of times in the FAC. As it stands, the FAC is simply too vague and indefinite to allow this action to proceed.
E. Pleading Standards under Rule 9(b)
Plaintiffs' failures in pleading are especially acute when considering their first cause of action, for deceit. Under California law, an action for deceit arises out of fraud. Small v. Fritz Companies, Inc., 30 Cal.4th 167, 173 (2003). Federal pleading standards require a party alleging fraud to "state with particularity the circumstances constituting fraud...." Fed. R. Civ. P. 9(b). Rule 9(b) "does not allow a complaint to merely lump multiple defendants together but 'require[s] plaintiffs to differentiate their allegations when suing more than one defendant ... and inform each defendant separately of the allegations surrounding his alleged participation in the fraud.'" Swartz v. KPMG LLP, 476 F.3d 756, 764-765 (9th Cir. 2007) (internal citations and quotations omitted). "In the context of a fraud suit involving multiple defendants, a plaintiff must, at minimum, identify the role of each defendant in the alleged fraudulent scheme." Id. (internal citations and quotations omitted).
As currently pleaded, Plaintiffs' claim for deceit is allegedly maintained against Citimortgage, Lone Star, and Trust, but only describes concrete actions taken by Citimortgage. Lone Star and Trust's involvement is pleaded in the vaguest terms: "Defendants and each of them knew that Plaintiffs would not receive a permanent HAMP modification because LONE STAR and TRUST intended to frustrate, impede, and prevent the modification from occurring by transferring the servicing of the Subject Loan from CITI to VERICREST before Plaintiffs could make the three mortgage payments." (FAC ¶ 94.) One cannot discern the specific "role of each in the alleged fraudulent scheme," Swartz, 476 F.3d at 765, because it is unclear what steps Lone Star and the Trust individually took in propagating the alleged deceit. In short, the FAC fails to meet applicable pleading standards under both Rule 8 and Rule 9.
"[L]eave to amend should be granted 'if it appears at all possible that the plaintiff can correct the defect.'" Breier v. Northern California Bowling Proprietors' Ass'n, 316 F.2d 787, 790 (9th Cir. 1963) (quoting 3 Moore, Federal Practice, § 15.10 at 838 (2d ed. 1948). The court grants Plaintiffs leave to amend their First Amended Complaint. If Plaintiffs file an amended complaint, they are directed to plead with the requisite specificity, as it is exceedingly unlikely that the court will grant them leave to amend another deficient complaint.
IV. CONCLUSION
The court orders as follows:
Plaintiffs' First Amended Complaint, ECF No. 11, is DISMISSED without prejudice. Plaintiffs are granted
leave to file an amended complaint no less than twenty-eight (28) days after entry of this order. This amended complaint may not allege any causes of action beyond those already pleaded in Plaintiffs' First Amended Complaint.
IT IS SO ORDERED.
_________________
LAWRENCE K. KARLTON
SENIOR JUDGE
UNITED STATES DISTRICT COURT