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dismissing negligence claim "[b]ecause the majority of California courts hold that loan modification activities are part and parcel of a loan servicer's 'conventional role as a lender of money,' and because plaintiff has not alleged any facts that show a special relationship with [defendant]."
Summary of this case from Becker v. Wells Fargo Bank Na, Inc.Opinion
NO. CIV. 2:13-1991 WBS CKD
11-15-2013
JASON DESCHAINE, Plaintiff, v. INDYMAC MORTGAGE SERVICES, A DIVISION OF ONEWEST BANK, FSB; FEDERAL HOME LOAN MORTGAGE CORPORATION; and DOES 1 through 50, inclusive, Defendants.
MEMORANDUM AND ORDER RE: MOTION
TO DISMISS
Plaintiff Jason Deschaine brought this action against defendants IndyMac Mortgage Services, a division of OneWest Bank, FSB ("IndyMac") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") arising out of the foreclosure of his home. Defendants now move to dismiss the action pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.
I. Factual & Procedural History
In 2005, plaintiff entered into a mortgage loan for $310,000, which was secured by a Deed of Trust to his home in Rough and Ready, California. (IndyMac Req. for Judicial Notice ("IndyMac RJN") Ex. A (Docket No. 10).) On January 26, 2009, Trustee Corps, a foreclosure trustee, recorded a Notice of Default against plaintiff's home stating that plaintiff was $17,901.804 in arrears on his mortgage payments. (Id. Ex. B.) Later that year, plaintiff contacted IndyMac, the servicer of plaintiff's mortgage loan, about the possibility of applying for a loan modification. (First Am. Compl. ("FAC") ¶ 15 (Docket No. 22).) Plaintiff initiated an application for a HAMP loan modification in September 2009 and entered into a trial loan modification plan ("TPP") in February 2010. (Id. ¶¶ 16-18.)
HAMP is a program initiated by the Treasury Department in 2009 "to incentivize banks to refinance mortgages of distressed homeowners so they could stay in their homes." Corvello v. Wells Fargo Bank, N.A., 728 F.3d 878, 880 (9th Cir. 2013).
Plaintiff began making payments under the TPP, but received notice from IndyMac in July 2010 that he was ineligible for a permanent HAMP loan modification because his mortgage payments were less than thirty-one percent of his monthly income. (Id. ¶¶ 19-20.) IndyMac invited plaintiff to apply for a Freddie Mac Backup Modification, under which plaintiff could continue to make payments on the mortgage. (Id. ¶ 20, Ex. B.) Plaintiff attempted to make payments under the Backup Modification for approximately a year and a half, but fell behind on his payments again. (Id. ¶ 23.) On June 13, 2012, Trustee Corps recorded another NOD, reflecting an arrearage of $11,990.13. (IndyMac RJN Ex. D.)
On several occasions between April 2012 and June 2013, plaintiff attempted to obtain an additional loan modification from IndyMac. (FAC ¶ 24.) Plaintiff alleges that IndyMac repeatedly declined to offer him a loan modification, either because IndyMac claimed that plaintiff's application was incomplete or because plaintiff was ineligible for a loan modification. (Id. ¶¶ 25-30.)
Plaintiff then filed for bankruptcy on February 25, 2013. (Id. ¶ 31; IndyMac RJN Ex. E.) Plaintiff obtained a discharge in bankruptcy on June 3, 2013. (IndyMac RJN Ex. F.) Although plaintiff did not disclose any of the claims he asserts in this lawsuit as assets in his bankruptcy filings, (see FAC ¶¶ 49, 50; IndyMac RJN Ex. D), he alleges that he re-opened his bankruptcy petition on October 29, 2013, to list these claims as assets. (Pl.'s Opp'n to Mot. to Dismiss ("Pl.'s Opp'n") 9:16-18 (Docket No. 27).)
It is not explained in the pleadings, and it is unclear to this court why plaintiff's debt on his home loan was not discharged in the bankruptcy proceeding. But obviously it was not. Apparently, the bankruptcy petition was filed in order to avert the sale of plaintiff's home, which was scheduled for the next day. It clearly accomplished that purpose, but not much else, and after the discharge the parties simply returned to business as usual.
During the time his bankruptcy petition was pending, IndyMac allegedly informed plaintiff that he could re-apply for a loan modification. (FAC ¶ 32.) Plaintiff submitted a complete loan application to IndyMac on March 20, 2013, as well as an updated application on April 4, 2013. (Id. ¶¶ 32-33.) Between April and June 2013, plaintiff alleges he "remained in constant contact" with IndyMac and continued to send updated financial documents when requested to do so. (Id. ¶ 34.)
On June 11, 2013, an IndyMac employee named "Alex W19" allegedly informed plaintiff that there was no foreclosure sale scheduled, but that IndyMac required additional documentation in order to process his application. (Id. ¶ 35.) Plaintiff then alleges that on June 24, 2013, an IndyMac employee named "Albert 938" informed plaintiff that his home would be sold at a foreclosure sale the next day. (Id. ¶ 36.) On June 25, 2013, Freddie Mac purchased plaintiff's home at a trustee's sale. (Id. ¶ 38.)
Plaintiff filed this action in Nevada County Superior Court on August 8, 2013, bringing ten claims against IndyMac, Trustee Corps, and Freddie Mac. (Not. of Removal Ex. A (Docket No. 1).) Defendants removed the action to this court pursuant to 12 U.S.C. § 1452(f), which entitles Freddie Mac to remove to federal court any action to which it is a party. (Id.) On October 21, 2013, plaintiff filed a First Amended Complaint ("FAC"), which alleged, as is typical in this kind of case, twelve separate claims for relief: (1) intentional misrepresentation; (2) negligent misrepresentation; (3) breach of contract; (4) promissory estoppel; (5) negligence; (6) violation of the Unfair Competition Law ("UCL"), Cal. Bus. & Profs. Code § 17200 et seq.; (7) equitable accounting; (8) "dual tracking" of plaintiff's loan modification application in violation of California Civil Code section 2923.6(c); (9) failure to issue plaintiff an opportunity to appeal the denial of a loan modification in violation of California Civil Code section 2923.6(d); (10) failure to appoint a single point of contact in violation of California Civil Code section 2923.7; (11) violation of California Civil Code section 2924; and (12) wrongful foreclosure. On November 12, 2013, plaintiff stipulated to dismiss Trustee Corps from the action with prejudice. (Docket No. 30.) Defendants now move to dismiss the FAC pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. (Docket No. 9.)
Plaintiff styles this claim as an "equitable action to set aside sale," which is equivalent to a wrongful foreclosure claim. See, e.g., Castaneda v. Saxon Mortg. Servs, Inc., 687 F. Supp. 2d 1191, 1201 (E.D. Cal. 2009) ("Wrongful foreclosure is an action in equity, where a plaintiff seeks to set aside a foreclosure sale."). In the interest of brevity, the court will refer to this claim as "wrongful foreclosure."
Although only IndyMac initially moved to dismiss, IndyMac and Freddie Mac later filed an amended notice clarifying that they jointly moved to dismiss. (Docket No. 23.)
II. Request for Judicial Notice
In general, a court may not consider items outside the pleadings when deciding a motion to dismiss, but it may consider items of which it can take judicial notice. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). A court may take judicial notice of facts "not subject to reasonable dispute" because they are either "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201. Judicial notice may properly be taken of matters of public record outside the pleadings. See MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986).
Defendants request that the court judicially notice several recorded documents pertaining to plaintiff's property, including the Deed of Trust, (IndyMac RJN Ex. A), and three Notices of Default, (id. Exs. B-D). The court will take judicial notice of these documents, since they are matters of public record whose accuracy cannot be questioned. See Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). The court will also take judicial notice of plaintiff's bankruptcy court filings, (see IndyMac RJN Exs. E-F), as they are likewise matters of public record whose accuracy cannot be questioned. See Rosal v. First Fed. Bank of Cal., 671 F. Supp. 2d 1111, 1121 (N.D. Cal. 2009) (taking judicial notice of bankruptcy filings).
III. Discussion
On a motion to dismiss, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). To survive a motion to dismiss, a plaintiff needs to plead "only enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," and where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 556-57).
A. Negligent & Intentional Misrepresentation
To state a claim for intentional misrepresentation, a plaintiff must allege: (1) a misrepresentation, (2) knowledge of falsity, (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance on the misrepresentation; and (5) resulting damage. Engalia v. Permanente Med. Grp., Inc., 15 Cal. 4th 951, 974 (1997); Kearns v. Ford Motor Co., 567 F.3d 1120, 1126 (9th Cir. 2009). To state a claim for negligent misrepresentation, a plaintiff must allege: (1) a misrepresentation of a past or existing material fact; (2) without reasonable ground for believing it to be true; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage. Apollo Capital Fund, LLC v. Roth Capital Partners, LLC, 158 Cal. App. 4th 226, 243 (2d Dist. 2007); Glenn K. Jackson, Inc. v. Roe, 273 F.3d 1192, 1200 (9th Cir. 2000).
Plaintiff alleges that at various points in 2012 and 2013, IndyMac falsely represented that plaintiff's loan application was incomplete, (FAC ¶ 64), that plaintiff was ineligible for a successive HAMP modification, (id. ¶ 70), and that there was no foreclosure sale scheduled. (Id. ¶ 76.) Plaintiff then alleges that, as a result of these three misrepresentations, he "continued [his] attempts to obtain a loan modification" from IndyMac rather than "exploring other options" that would have enabled him to continue making monthly mortgage payments and postpone the trustee's sale. (Id. ¶¶ 68, 74, 80.)
Even if plaintiff could satisfy the first three elements of each claim, he has not shown that he acted in reliance on any of IndyMac's alleged misrepresentations. In the mortgage context, a plaintiff's allegations that he declined to "explore other options" as a result of a lender's false representations are generally not sufficient to withstand a motion to dismiss because they simply "re-state the element of the claim." Valtierra v. Wells Fargo Bank, N.A., No. CIV-F-10-0849 AWI GSA, 2011 WL 2078024, at *3 (E.D. Cal. May 25, 2011) (holding that an allegation that "Plaintiff could have explored other options had the [Defendant] not acted in such a deceptive manner" was not sufficient to demonstrate reliance).
Plaintiff does not identify what "other options" he declined to pursue, or how they would have enabled him to make his mortgage payments or postpone the foreclosure sale. For instance, one panel of the California Court of Appeal held that a plaintiff could survive demurrer based on allegations that "she would have pursued other options, including possibly selling her home, retaining counsel earlier, and/or finding a cosigner to save her home" but for the defendant's statement that she would receive a permanent loan modification. West v. JPMorgan Chase Bank, N.A., 214 Cal. App. 4th 780, 805 (4th Dist. 2013). By contrast, this court has held that bare allegations that the plaintiff would have explored other options or pursued legal action to stop a foreclosure sale were insufficient to survive a motion to dismiss. See, e.g., Sholiay v. Fed. Nat'l Mortg. Assoc., No. CIV 2:13-00958, 2013 WL 5569988, at *7 n. 6 (E.D. Cal. Oct. 9, 2013) (holding that plaintiff's allegation that he would have been able to enjoin a trustee's sale if he was not falsely promised a loan modification was implausible because his "underlying claim lacks merit").
"Even assuming justifiable reliance . . . no liability attaches if the damages sustained were otherwise inevitable or due to unrelated causes." Gardner v. RSM & A Foreclosure Servs., LLC, No. CIV. 2:12-2666 JAM AC, 2013 WL 3242211, at *4 (E.D. Cal. June 25, 2013) (quoting Kruse v. Bank of Am., 202 Cal. App. 3d 38, 60 -61 (1st Dist. 1988) (internal quotation marks omitted)). Here, plaintiff's allegations do not show that any damages he suffered were the result of IndyMac's conduct, rather than his own failure to make his mortgage payments. Trustee Corps recorded multiple notices of default against plaintiff's home prior to any of the alleged misrepresentations, and each of these notices states an arrearage of over $10,000. (See IndyMac RJN Exs. B-D.) See Manzano v. Metlife Bank, N.A., No. CIV 2:11-651 WBS DAD, 2011 WL 2080249, at *5 (E.D. Cal. May 25, 2011) (dismissing fraud and negligent misrepresentation claims when "plaintiff stopped making payments under the loan before these alleged misrepresentations were made"); DeLeon v. Wells Fargo Bank, N.A., 10-CV-10390-LHK, 2011 WL 311376, at *7 (N.D. Cal. Jan. 28, 2011) ("Without some factual basis suggesting that Plaintiffs could have cured the default . . . the Court cannot reasonably infer that Wells Fargo's alleged misrepresentations resulted in the loss of plaintiff's home. The facts alleged suggest that Plaintiffs lost their home because they became unable to keep up with monthly payments and lacked the financial resources to cure the default.").
In short, plaintiff has not sufficiently alleged that he relied on any of IndyMac's representations; even if he had, he has not alleged any facts showing that the damages he suffered were a result of IndyMac's alleged misrepresentations, as opposed to his own inability to pay back his loan. See Gardner, 2013 WL 3242211, at *4. Accordingly, the court must grant IndyMac's motion to dismiss plaintiff's intentional and negligent misrepresentation claims.
B. Promissory Estoppel
"The elements of a promissory estoppel claim are: (1) a promise that is clear and unambiguous in its terms; (2) reliance on the promise by the party to whom the promise is made; (3) that is reasonable and foreseeable; and (4) injury to the party asserting estoppel due to his or her reliance." Alimena v. Vericrest Fin., Inc., --- F. Supp. 2d ----, No. CIV 2:12-901 LKK JFM, 2013 WL 4049663, at *12 (E.D. Cal. Aug. 29, 2013) (citing Laks v. Coast Fed. Sav. & Loan Ass'n, 60 Cal. App. 3d 885, 890-91 (2d Dist 1976)).
Plaintiff alleges that IndyMac "promised [p]laintiff a HAMP loan modification in or about 2010 and further promised not to foreclose on [p]laintiff while he was being reviewed for a loan modification." (FAC ¶ 95.) As explained above, even if IndyMac had made these promises, plaintiff has not sufficiently alleged that he suffered any injury in reliance on these promises. Accordingly, the court must grant IndyMac's motion to dismiss plaintiff's promissory estoppel claim.
C. Breach of Contract
"[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff." Oasis W. Realty, Inc. v. Goldman, 51 Cal. 4th 811, 821 (2011).
Plaintiff alleges that IndyMac promised to extend him a permanent loan modification and that it breached this promise by providing him with a "backup modification" with terms that were inconsistent with HAMP guidelines. (FAC ¶ 90.) The court need not decide whether this alleged promise constituted an enforceable contract because, even if it did, plaintiff admits that he did not make all of the payments that were required under the loan modification agreement. (Id. ¶ 91.) Because plaintiff has not performed his obligation under any alleged contract, he cannot bring a breach of contract claim unless his failure to perform is excused.
Plaintiff alleges that his failure to make payments was excused because he could no longer afford to make the payments, which were "based on inaccurate income and outside of HAMP guidelines." (Id.) However, it is black-letter law that "mere unforeseen difficulty or expense . . . ordinarily will not excuse performance." 1 Witkin, Summary of California Law (Contracts) § 830 (10th ed. 2005); Metzler v. Thye, 163 Cal. 95, 98 (1912). In order to show that his performance was excused, plaintiff must show that it was "objectively impossible" for any person to make the required payments. Rosales v. Downey Sav. & Loan Ass'n, No. 09cv39 WQH (AJB), 2009 WL 514229, at *8 (S.D. Cal. Mar. 2, 2009) (citing Hensler v. City of Los Angeles, 124 Cal. App. 2d 71, 83 (2d Dist. 1954)).
The fact that the required mortgage payments were onerous is not enough to excuse plaintiff's failure to pay them. See, e.g., Archiunda v. Chase Home Fin. LLC, No. 09-CV-00960-H (AJB), 2009 WL 1796295, at *5 (S.D. Cal. June 23, 2009) (holding that plaintiff's performance was not excused even though he alleged that "based upon the actual income information provided . . . Plaintiff could never perform according to the terms of the loan"). Because it is not "impossible for anyone to perform," id., plaintiff's failure to make payments does not excuse his nonperformance, and plaintiff cannot state a breach of contract claim. Accordingly, the court must grant IndyMac's motion to dismiss plaintiff's breach of contract claim.
D. Negligence
"To prove a cause of action for negligence, plaintiff must show (1) a legal duty to use reasonable care, (2) breach of that duty, and (3) proximate [or legal] cause between the breach and (4) the [plaintiff's] injury." Castaneda, 687 F. Supp. 2d at 1197 (citing Mendoza v. City of Los Angeles, 66 Cal. App. 4th 1333, 1339 (2d Dist. 1998)) (internal quotation marks omitted). "The existence of a legal duty to use reasonable care in a particular factual situation is a question of law for the court to decide." Vasquez v. Residential Invs., Inc., 118 Cal. App. 4th 269, 278 (4th Dist. 2004).
"[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 lender of money." Nymark v. Heart Fed. Sav. & Loan Ass'n, 231 Cal. App. 3d 1089, 1096 (3d Dist. 1991). Plaintiff argues, however, that IndyMac owed him a duty of care because it "actively engaged him in the modification process" and exceeded the scope of its traditional role as a lender. (Pl.'s Opp'n at 20:13-14.) Some courts in California have held that a loan servicer who offers a loan modification goes "beyond its role as a silent lender and loan servicer" and that its activities "constitute sufficient active participation to create a duty of care." Ansanelli v. JP Morgan Chase Bank, N.A., No. C-10-03892 WHA, 2011 WL 1134451, at *7 (N.D. Cal. Mar. 28, 2011); see also, e.g., Jolley v. Chase Home Fin., LLC, 213 Cal. App. 4th 872, 905 (1st Dist. 2013); Becker v. Wells Fargo Bank, N.A., No. CIV. 2:10-02799 LKK KJN, 2012 WL 6005759, at *11-*12 (E.D. Cal. Nov. 30, 2 012) (Newman, M.J.); Garcia v. Ocwen Loan Servicing, LLC, No. C-10-0290 PVT, 2010 WL 1881098, at *2-*3 (N.D. Cal. May 10, 2010).
Despite plaintiff's reliance on this "long line" of authorities, (Pl.'s Opp'n at 20:27), Ansanelli and its progeny represent a minority position. Armstrong v. Chevy Chase Bank, FSB, No. 5:11-cv-05664 EJD, 2012 WL 4747165, at *4 (N.D. Cal. Oct. 3, 2012); see also Settle v. World Sav. Bank, F.S.B., No. ED CV 11-00800 MMM (DTBx), 2012 WL 1026103, at *8 (C.D. Cal. Jan. 11, 2012) (noting that "numerous cases have characterized a loan modification as a traditional money lending activity" and listing cases). In Armstrong, the court explained that "a loan modification, which at its core is an attempt by a money lender to salvage a troubled loan, is nothing more than a renegotiation of loan terms." Armstrong, 2012 WL 4747165, at *4. "Outside of actually lending money, it is undebatable that negotiating the terms of the lending relationship is one of the key functions of a money lender." Id. For this reason, the court has stated before that it, "like the court in Armstrong, finds Ansanelli unpersuasive." Bunce v. Ocwen Loan Servicing, LLC, No. CIV. 2:13-00976 WBS EFB, 2013 WL 3773950, at *6 (E.D. Cal. July 17, 2013).
Because the majority of California courts hold that loan modification activities are part and parcel of a loan servicer's "conventional role as a lender of money," Nymark, 231 Cal. App. 3d at 1096, and because plaintiff has not alleged any facts that show a special relationship with IndyMac, plaintiff cannot allege that IndyMac owed him a duty of care. Accordingly, the court must grant IndyMac's motion to dismiss plaintiff's negligence claim.
E. Equitable Accounting
"Under California law, an accounting is generally a remedy under equity," rather than a freestanding cause of action. Pantoja v. Countrywide Home Loans, Inc., 640 F. Supp. 2d 1177, 1191 (N.D. Cal. 2009) (citing Batt v. City & County of San Francisco, 155 Cal. App. 4th 65, 82 (1st Dist. 2007)). To the extent that California law does permit a separate cause of action for accounting, a plaintiff must show that there is "some balance due the plaintiff that can only be ascertained by an accounting." Teselle v. McLoughlin, 173 Cal. App. 4th 156, 179 (3d Dist. 2009). Plaintiff does not seek an accounting of the money that defendants owe him; rather, he seeks an accounting of the "true amount of his indebtedness" to defendants. (Pl.'s Opp'n at 23:15.) Accordingly, plaintiff cannot bring a claim for accounting, and the court must grant defendants' motion to dismiss this claim. F. HOLA Preemption
The Home Owners Loan Act of 1933 ("HOLA") authorizes the Office of Thrift Supervision ("OTS") to promulgate regulations governing federal savings associations. 12 U.S.C. § 1464; Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1005 (9th Cir. 2008). Pursuant to that authority, OTS has issued a regulation that authorizes federal savings associations to "extend credit as authorized under federal law . . . without regard to state laws purporting to regulate or otherwise affect their credit activities." 12 C.F.R. § 560.2(a). By its own terms, this regulation "occupies the entire field of lending regulation for federal savings associations," id., and therefore "le[aves] no room for the States to supplement it." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947).
The regulation lists thirteen "illustrative examples" of state laws that are preempted. 12 C.F.R. § 560.2(b). In particular, the regulation preempts any state law that purports to regulate the "processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages." 12 C.F.R. § 560.2(b)(10). The list in paragraph (b) is not limited to statutes that specifically regulate lending activities, but also encompasses statutes of general applicability, such as the UCL. See, e.g., Munoz v. Fin. Freedom Senior Funding Corp., 567 F. Supp. 2d 1156, 1163 (C.D. Cal. 2008) (holding that UCL claims were preempted by HOLA). The regulation also includes a savings clause stating that several types of state law, including contract and commercial law, real property law, and tort law, "are not preempted to the extent that they only incidentally affect the lending operations of Federal savings associations or are otherwise consistent with the purposes of paragraph (a) of this section." 12 C.F.R. § 560.2(c).
OTS has also promulgated a framework for courts to determine "the status of state laws under § 560.2":
[T]he first step will be to determine whether the type of law in question is listed in paragraph (b). If so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then, in accordance with paragraph (a), the presumption arises that the law is preempted. This presumption can be reversed only if the law can be shown to fit within the confines of paragraph (c).OTS, Final Rule, 61 Fed. Reg. 50951, 50966-67 (Sept. 30, 1996). The Final Rule emphasizes that "paragraph (c)," the savings clause in the regulation, "is intended to be interpreted narrowly," and that "[a]ny doubt should be resolved in favor of preemption." Id.; see also Bank of Am. v. City & County of San Francisco, 309 F.3d 551, 558 (9th Cir. 2002) ("[B]ecause there has been a history of significant federal presence in national banking, the presumption against preemption of state law is inapplicable."). In applying this framework, the relevant issue is whether the state law, "as applied, is a type of state law contemplated in the list under paragraph (b)." Silvas, 514 F.3d at 1006 (emphasis added).
To the extent that the Final Rule evinces OTS's interpretation of the preemptive scope of § 560.2, it "must be given controlling weight." Silvas, 514 F.3d at 1005 n.5 (citing Auer v. Robbins, 519 U.S. 452 (1997)); see also Bassiri v. Xerox Corp., 463 F.3d 927, 930 (9th Cir. 2006) (explaining that an agency's interpretation of its own regulation is "controlling" under Auer).
IndyMac is a division of OneWest Bank, FSB, which is a federally chartered savings bank. The Deed of Trust noted that the "Lender" was "IndyMac Bank, F.S.B., a federally chartered savings bank." (IndyMac RJN Ex. A.) IndyMac is therefore a federal savings association subject to OTS regulations, see 12 U.S.C. § 1462 (defining a "federal savings association"), and the court must determine whether plaintiff's five statutory claims are preempted.
Because the court grants IndyMac's motion to dismiss plaintiff's non-statutory claims on alternative grounds, it need not determine whether those claims are also preempted by HOLA.
1. California Civil Code Section 2923
Plaintiff brings claims under sections 2923.6(c), 2923.6(d), and 2923.7 of the California Civil Code, which regulate loan modification activities. Plaintiff alleges that IndyMac's conduct in the loan modification process violated California Civil Code section 2923 because IndyMac "dual tracked" his application, (FAC ¶ 120), did not permit him to appeal the denial of his application, (id. ¶ 117), and failed to assign him a single point of contact with regard to his application (id. ¶ 121). Plaintiff alleges that these violations resulted in the unlawful sale of his home at a foreclosure sale. (Id. ¶¶ 118, 120, 122.)
As applied to plaintiff's claims, section 2923 is preempted because it imposes requirements on the "processing, origination, [and] servicing" of plaintiff's mortgage loan and application for a loan modification in addition to those imposed by federal law. 12 C.F.R. § 560.2(b)(10); see, e.g., Biggins v. Wells Fargo & Co., 266 F.R.D. 399, 417 (N.D. Cal. 2009) (holding that a section 2923.6 claim premised on failure to extend a loan modification was preempted by HOLA); Marquez v. Wells Fargo Bank, N.A., No. C 13-2819 PJH, 2013 WL 5141689, at *5 (N.D. Cal. Sept. 13, 2013) (holding that a section 2923.7 claim based on allegations that the plaintiffs were denied a single point of contact and were never "given a meaningful opportunity to apply for, and receive, a loan modification . . . is preempted by HOLA").
Even if section 2923 were not covered by § 560.2(b)(10), it would still be preempted to the extent that it affected IndyMac's lending activities by imposing liability on IndyMac for its conduct in the loan modification process. See Final Rule, 61 Fed. Reg. at 50966-67. To the extent that plaintiff alleges that IndyMac's "fail[ure] to communicate" with him during the loan modification process can give rise to liability, section 2923 is preempted because it would impose duties on IndyMac that it would "not be subject to . . . in other states." Parcray v. Shea Mortg., Inc., No. CIV. 2:09-1942 OWW GSA, 2010 WL 1659369, at *8 (E.D. Cal. Apr. 23, 2010) (citing Odinma v. Aurora Loan Svcs., No. C-09-4674 EDL, 2010 WL 1199886, at *8 (N.D. Cal. Mar. 23, 2010)). Accordingly, the court must grant IndyMac's motion to dismiss plaintiff's section 2923 claims.
2. California Civil Code Section 2924
Plaintiff also brings a claim under section 2924 of the California Civil Code, which regulates foreclosure proceedings. Plaintiff alleges that the assignment of his mortgage loan to a securitized trust was unlawful, that the Notice of Default was therefore void, and that, as a result, the foreclosure sale violated Civil Code section 2924.
Like plaintiff's section 2923 claims, section 2924 "[c]laims based on misconduct related to the foreclosure proceedings" are preempted by HOLA. Ismail v. Wells Fargo Bank, N.A., No. CIV. 2:12-1653 MCE CKD, 2013 WL 930611, at *9 (E.D. Cal. Mar. 8, 2013) (citations omitted); see also, e.g., DeLeon v. Wells Fargo Bank, N.A., 729 F. Supp. 2d 1119, 1126 (N.D. Cal. 2010) (holding that claims under sections 2923.5 and 2924 are preempted by HOLA); Ngoc Nguyen v. Wells Fargo Bank, N.A., 74 9 F. Supp. 2d 1022, 1032 (N.D. Cal. 2010) (same). Plaintiff's claim, which is premised on the alleged assignment of his loan to a securitized trust, is squarely preempted because it seeks to apply section 2924 to regulate IndyMac's "sale or purchase" of mortgages. 12 C.F.R. § 560.2(b)(10); Sami v. Wells Fargo Bank, No. C. 12-00108 DMR, 2012 WL 967051, at *6-7 (holding that a section 2924 claim premised on allegations of unlawful assignment was preempted by HOLA). Because plaintiff's section 2924 claim is premised on the allegation that IndyMac lacked authority to initiate the foreclosure sale, it is preempted for the same reason. Id. at *8 ("Initiation of the foreclosure process is the type of lending activity expressly contemplated by § 560.2(b)(10) because it constitutes the 'processing' and 'servicing' of a mortgage."). Accordingly, the court must grant defendants' motion to dismiss plaintiff's section 2924 claim.
3. The UCL
California's UCL prohibits "any unlawful, unfair, or fraudulent business act or practice . . . ." Cal Bus. & Profs. Code § 17200. The UCL "establishes three varieties of unfair competition . . . . In other words, a practice is prohibited as unfair or deceptive even if not unlawful and vice versa." Cel-Tech Comm'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999) (internal quotation marks and citations omitted).
Plaintiff brings a claim under the UCL for "unlawful business practices," in which he alleges that IndyMac "violated Cal. Civ. Code §§ 2923.6, 2923.7, and 2924." (FAC ¶ 108.) Because "those statutes would impose additional requirements on [IndyMac] in the mortgage process, the UCL claim is . . . preempted to the extent that it depends on those statutes." Plastino v. Wells Fargo Bank, 873 F. Supp. 2d 1179, 1186 n.4 (N.D. Cal. 2012); see also Vega v. JPMorgan Chase Bank, N.A., 654 F. Supp. 2d 1104, 1118 (E.D. Cal. 2009) (O'Neill, J.) (holding that plaintiffs in a foreclosure-related action "are unable to avoid [HOLA] preemption in the guise of a UCL claim"). Accordingly, the court must grant defendants' motion to dismiss plaintiff's UCL claim.
Although plaintiff labels his UCL claim "unlawful business practices," some allegations suggest that he also seeks to assert a claim under the UCL's "unfair" prong. (See, e.g., FAC ¶ 107 ("[T]he unlawful acts and practices of Defendants alleged herein constitute unlawful or unfair business practices . . . .").) The court need not determine whether plaintiff has stated a claim under the UCL's "unfair" prong because any such claim would also be preempted. See, e.g., Vega, 654 F. Supp. 2d at 1118 (noting that a UCL claim brought under the "unfair" prong was preempted by HOLA to the extent that it relied on allegations of inadequate loan disclosures).
Plaintiff's UCL claim also reiterates his allegations that IndyMac committed "material misrepresentations affecting plaintiff's interest in [his home] and committed numerous acts of negligence in the handling of and processing of [p]laintiff's loan modification applications." (FAC ¶ 108.) These allegations cannot give rise to an "unlawful business practices" claim, which must be premised on the violation of a statute or constitutional provision. Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1168 (9th Cir. 2012) (citing People ex rel. Lockyer v. Fremont Life Ins. Co., 104 Cal. App. 4th 508, 515 (2d Dist. 2002)). Because plaintiff's section 2923 and 2924 claims are preempted by HOLA, plaintiff has no constitutional or statutory predicate for his UCL claim. See id.
Because all of plaintiff's statutory claims are preempted by HOLA, the court need not reach IndyMac's argument that these statutes violate the Contracts Clause of the Constitution. See Douglas v. Seacoast Prods., Inc., 431 U.S. 265 (1977) (holding that addressing preemption questions before constitutional questions is consistent with the "practice of deciding statutory claims first to avoid unnecessary constitutional adjudications").
G. Wrongful Foreclosure
"Wrongful foreclosure is an action in equity, where a plaintiff seeks to set aside a foreclosure sale." Castaneda, 687 F. Supp. 2d at 1201. "A nonjudicial foreclosure sale is accompanied by a presumption that it was conducted regularly and fairly." Melendrez v. D & I Inv., Inc., 127 Cal. App. 4th 1238, 1258 (6th Dist. 2005) (internal quotation marks omitted). "This presumption may only be rebutted by substantial evidence of prejudicial procedural irregularity." Id.; see also Quinteros v. Aurora Loan Servs., 740 F. Supp. 2d 1163, 1169 (E.D. Cal. 2010) (Ishii, J.) ("[S]ome form of actual prejudice is necessary."). On a motion to dismiss, therefore, a plaintiff must allege "facts showing that [he was] prejudiced by the alleged procedural defects." Hadley v. BNC Mortg., Inc., 466 Fed. App'x 612, 613 (9th Cir. 2012) (citing Arnolds Mgmt. Corp. v. Eischen, 158 Cal. App. 3d 575 (2d Dist. 1984)).
Plaintiff alleges that he "suffered harm and prejudice as the sale occurred and he has now lost title to the Subject Property." (FAC ¶ 132.) The fact that plaintiff lost title to his home in a foreclosure sale does not constitute prejudice; if it did, the prejudice inquiry would be meaningless because every plaintiff in a wrongful foreclosure action has lost title to his or her home in a foreclosure sale. Rather, plaintiff must demonstrate that the "violation of the statute[s] [themselves], and not the foreclosure proceedings, caused [his] injury." Aguiar v. Wells Fargo Bank, N.A., No. 12-CV-03653 YGR, 2012 WL 5915124, at *5 (N.D. Cal. Nov. 26, 2012).
Plaintiff cannot do so for two reasons. First, because plaintiff's statutory claims cannot withstand dismissal, he cannot bring a wrongful foreclosure claim predicated on violations of those statutes. See, e.g., Falcocchia v. Saxon Mortg., Inc., 709 F. Supp. 2d 873, 887 (E.D. Cal. 2010) (Karlton, J.) (holding that because plaintiff's statutory claims under the Real Estate Settlement Procedures Act (RESPA) failed, plaintiff could not bring a wrongful foreclosure claim predicated on RESPA violations). Plaintiff cannot do an end-run around HOLA preemption by recasting his statutory claims as a wrongful foreclosure claim. See DeLeon, 729 F. Supp. 2d at 1126 (holding that plaintiff's wrongful foreclosure claim was preempted because it relied upon violations of statutory claims that were preempted).
Second, even if plaintiff could bring this wrongful foreclosure claim, plaintiff has not sufficiently alleged that he was prejudiced by any alleged violation of these statutes. At various points throughout the FAC, plaintiff alleges that he was not assigned a single point of contact about his loan modification application, (FAC ¶ 121), was "dual tracked," (id. ¶ 120), and was denied an opportunity to appeal the decision not to offer him a loan modification, (id. ¶ 117). Plaintiff does not allege any facts showing that these alleged irregularities resulted in the denial of his application for a loan modification or that he could have successfully appealed the denial of his application for a loan modification. Plaintiff has therefore not alleged that these "violations of the statute[s] [themselves], and not the foreclosure proceedings, caused [his] injury." Aguiar, 2012 WL 5915124, at *5. Accordingly, the court must grant IndyMac's motion to dismiss this claim.
H. Claims Against Freddie Mac
Plaintiff also asserts that Freddie Mac is liable for IndyMac's conduct because IndyMac acted as the agent of Freddie Mac, the owner of plaintiff's loan. (FAC ¶¶ 51-58.) The court need not determine whether plaintiff has alleged sufficient "facts that would suggest a plausible agency relationship" between IndyMac and Freddie Mac, Castaneda v. Saxon Mortg. Servs., Inc., No. CIV. 2:09-1124 WBS DAD, 2010 WL 726903, at *6 (E.D. Cal. Feb. 26, 2010), because plaintiff has not stated a claim for relief against IndyMac and does not allege any separate wrongdoing by Freddie Mac. Accordingly, the court must grant defendants' motion to dismiss all claims against Freddie Mac.
Because the court grants defendants' motion to dismiss in its entirety, it need not reach defendants' argument that plaintiff is estopped from bringing any claims that he did not include in his bankruptcy petition.
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IT IS THEREFORE ORDERED that defendants' motion to dismiss be, and the same hereby is, GRANTED. Plaintiff has twenty days to file an amended complaint, if he can do so consistent with this Order.
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WILLIAM B. SHUBB
UNITED STATES DISTRICT JUDGE