Summary
noting tender rule applies where claim seeks to "set aside a wrongful foreclosure"
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Case No. EDCV 14-02038-VAP (DTBx)
12-19-2014
CLAUDIA MEDRANO v. CALIBER HOMES LOANS, INC., et al.
PRIORITY SEND
CIVIL MINUTES -- GENERAL
PRESENT: HONORABLE VIRGINIA A. PHILLIPS, U.S. DISTRICT JUDGE Marva Dillard
Courtroom Deputy None Present
Court Reporter ATTORNEYS PRESENT FOR
PLAINTIFFS:
None ATTORNEYS PRESENT FOR
DEFENDANTS:
None PROCEEDINGS: MINUTE ORDER GRANTING DEFENDANTS' MOTION TO DISMISS, IN PART, WITH LEAVE TO AMEND (DOC. NO. 13) IN PART (IN CHAMBERS)
Plaintiff Claudia Medrano defaulted on a debt owed to Defendant U.S. Bank Trust, N.A. ("U.S. Bank"), serviced by Defendant Caliber Home Loans, Inc. ("Caliber"), and secured by a deed of trust encumbering Medrano's house. Defendant Summit Management Company, LLC, acting as the trustee of that deed, sold Medrano's house to satisfy Medrano's debt to U.S. Bank. Medrano contends that she was trying to avert the sale by seeking a loan modification, but the runaround Caliber gave her in that process allowed for the trustee's sale of her house in the meantime - in violation of, among other things, California's Homeowners' Bill of Rights. (See generally First Am. Compl. ("FAC") (Doc. No. 1-1).)
Defendants filed a Motion to Dismiss (Doc. No. 13), arguing that Medrano fails to state a claim under the Homeowners' Bill of Rights, that she is not entitled to any equitable relief (e.g., the rescission of the sale) unless she is able to pay off her debt, and that she has failed to join an indispensable party to the suit: a joint tenant with whom she owned the house. As discussed below, the Court GRANTS the Motion only IN PART, WITH LEAVE TO AMEND.
I. BACKGROUND
A. Factual Background
On November 7, 2002, Medrano encumbered the property in question with a deed of trust securing a $172,000 loan. (FAC ¶ 8.) In September 2013, because of difficulty making her monthly payments, Medrano sought a modification from the loan's servicer, Caliber. (Id. ¶ 11.) To avert an impending trustee's sale of the property, she submitted a complete application for a loan modification in October, but on December 26, she received a notice that her house would be sold on February 3, 2014. (Id. ¶ 12.) In January 2014, Medrano contacted Caliber, which denied receiving Medrano's application and refused to delay the Feburary 3 trustee's sale. (Id. ¶ 13.)
To avoid the sale, Medrano sought bankruptcy protection. (Id. ¶ 14.) During the pendency of the bankruptcy proceedings, Medrano re-applied for a loan modification. (Id.) On March 28, Edward, a Caliber representative, called Medrano and confirmed that Medrano's application was complete. (Id. ¶ 15.) Notwithstanding Edward's representation, on April 30, Medrano received a letter from Caliber informing her that her application was being denied because she did not submit the necessary documents. (Id. ¶ 16.)
On May 6, Medrano submitted a written appeal of the denial letter, and Caliber directed her to file a new application for a loan modification; on May 16, Medrano did. (Id. ¶¶ 20-21.) A month later, Caliber sent Medrano two letters simultaneously. (Id. ¶ 22.) One informed her that it received her application (see FAC Ex. D); the other thanked her for sending unspecified documents that Caliber requested previously (see FAC Ex. E).
Nevertheless, with no further communication, Caliber set a new trustee's sale for July 9, 2014. (FAC ¶ 24.) On July 8, Medrano called Caliber and was told by a representative named Natasha that the sale had been canceled while Medrano's modification application was under review. (Id. ¶ 25.) On July 9, Medrano learned that a trustee's sale would, in fact, go forward. She called Caliber again, only to be told that Natasha made Medrano an inaccurate assurance, and nothing could be done to correct the error. (Id. ¶ 27.) Medrano's house sold that day. (Id. ¶ 28.)
On July 10, Medrano called Caliber once more, and spoke to a manager named Jennifer, a representative named Cindy, and another representative named Casca. (Id. ¶¶ 29-31.) They told Medrano that while there had been a hold on the trustee's sale, Caliber removed it on the morning of July 9, and nothing could be done about it. Shortly thereafter, the buyer of Medrano's property began proceedings in California state court to remove her from the premises. (See Id. ¶¶ 32-33.)
B. Procedural History
Medrano filed the First Amended Complaint in the Superior Court of the State of California for the County of San Bernardino on August 22, 2014; Defendants were served on September 2 and removed the action to this Court on October 1. (See generally Not. of Removal (Doc. No. 1).) The FAC contains seven claims for relief. First, Medrano alleges Caliber violated California Civil Code sections 2923.6 and 2924.11 (the so-called "Homeowners' Bill of Rights") by failing to consider her May 6 appeal or May 16 loan modification application properly before selling her house. Section 2923.6(c) prohibits a mortgage servicer (or trustee, or beneficiary of a deed of a trust), from conducting a trustee's sale while a loan modification application is pending; section 2924.11 requires any denial of an application to be in writing, and specific as to the reasons for the denial. (See FAC ¶¶ 38-50.)
Second, Medrano contends that "Caliber, on behalf of U[.]S[.] Bank, caused an illegal, fraudulent, and willfully oppressive sale" of Medrano's house, in so far as its violation of the Homeowners' Bill of Rights led to a wrongful foreclosure. (See id. ¶¶ 51-59.)
Third, Medrano alleges that Caliber's representative, Natasha, fraudulently misrepresented that the July 9 trustee's sale was canceled in order to prevent Medrano "from taking any legal action" to avert it. (See id. ¶¶ 60-66.) Medrano allegedly relied on that representation, and therefore did forgo any such action, to her detriment.
Fourth, Medrano casts the same misrepresentation, if not willful, as negligent, and therefore makes it the basis for a claim of negligent misrepresentation. (See id. ¶¶ 67-73.)
Fifth, Medrano makes a claim for promissory estoppel on the basis that Natasha's representation constituted a promise that caused Medrano to forbear from taking some action, to her detriment. (See id. ¶¶ 74-79.)
Sixth, Medrano claims Caliber acted negligently by:
(i) refusing to provide a meaningful review of [Medrano's] loan modification applications, (ii) failing to provide specific reasons for [Medrano's] denial, (iii) falsely stating that [Medrano's] applications were incomplete when they were not, and (iv) ignoring [Medrano's] request for appeal.(See id. ¶¶ 80-85.)
Seventh, and finally, Medrano alleges that Caliber's bad acts constitute violations of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200, et seq. (See FAC ¶¶ 86-90.)
Medrano seeks compensatory and punitive damages, injunctive relief (including rescission of the trustee's sale), and costs. (See id. at 17.)
Defendants filed a Motion to Dismiss each of Medrano's claims. First, Defendants argue that Medrano failed to state a claim for a violation of the Homeowners' Bill of Rights, because she did not allege with specificity the facts indicating that her loan modification application was complete. (See Mot. at 5-6.) Moreover, Defendants contend, Medrano's loan was modified twice previously, placing the modification at issue now outside the Bill's protections. (See id. at 7.) In any event, Defendants argue, Caliber complied with the Bill's requirements. (See id. at 7-9.)
Second, Defendants contend that Medrano's Wrongful Foreclosure Claim fails because Medrano failed to state a claim for a violation of the Homeowners' Bill of Rights, and additionally, because she failed to allege that she tendered, or offered to tender, the debt on which she defaulted - a prerequisite to bringing a wrongful foreclosure claim. (See id. at 9.)
As to Medrano's third and fourth claims, Defendants argue that Medrano failed to plead with the required specificity that she changed her position substantially based on Natasha's representations. Additionally, they contend, Medrano's reliance on Natasha's statements was unjustified without a recorded rescission of the trustee's sale, and in any event, Medrano's damages arise from the trustee's sale of her house, not from Natasha's alleged misrepresentation. (See id. at 10-11.) On top of that, Defendants observe that Medrano has not even pled Natasha's representation was false, as Caliber did not remove its hold on the trustee's sale of Medrano's property until the morning after Natasha told Medrano the sale would be postponed. (See id. at 11.)
Nor can Medrano's fifth claim (for promissory estoppel) succeed, Defendants argue, as Medrano did not allege a change in position in reliance on Natasha's representation about the postponement of the July 9 trustee's sale. (See id. at 12-13.) And, Defendants add, Medrano's Negligence Claim - her sixth - fails because neither Caliber nor U.S. Bank owed Medrano a duty of care and because Medrano did not suffer a physical injury required to recover for negligence under California law. (See id. at 13-14.) Defendants posit Medrano's final claim, for a violation of the UCL, fails as well, because none of her other claims - predicates for a UCL violation - are pled successfully. (See id. at 14-15.)
In addition to attacking Medrano's substantive claims, Defendants also argue that Summit should be dismissed with prejudice from the action, because all of Medrano's claims are directed against U.S. Bank and Caliber - none name Summit. (See id. at 16.) Moreover, Defendants would apply the tender rule to all Medrano's claims (not just her Wrongful Foreclosure Claim), thereby resulting in the dismissal of the entire pleading. Finally, Defendants argue the whole First Amended Complaint should be dismissed, pursuant to Federal Rule of Civil Procedure 12(b)(7), because Medrano failed to join an indispensable party as a plaintiff in the lawsuit: the co-owner of the house put up as security for Medrano's loan. (See id. at 16-17.)
Medrano filed a timely Opposition (Doc. No. 17) to Defendants' Motion, and Defendants filed a Reply (Doc. No. 19).
II. LEGAL STANDARDS
A. Federal Rule of Civil Procedure 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) allows a party to move to dismiss a complaint, or portions thereof, for failure to state a claim on which relief may be granted. Correspondingly, "[t]o survive such a motion, a complaint must allege 'enough facts to state a claim to relief that is plausible on its face.'" Retail Property Trust v. United Bhd. of Carpenters & Joiners of Am., 768 F.3d 938, 945 (9th Cir. 2014) (quoting Bell Atl. Corp v. Twombly, 550 U.S. 544, 570 (2007)). In determining whether a complaint satisfies that requirement, a court must accept the complaint's factual allegations - though not its conclusions - as true, and draw any reasonable inferences from those allegations in the non-moving party's favor. Johnson v. City of Shelby, 135 S. Ct. 346, 347 (2014) (per curiam); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046, 1051 (9th Cir. 2014); Retail Property Trust, 768 F.3d at 945. In addition to considering the complaint in its entirety, the court must also consider "'documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.'" Harris v. Amgen, Inc., 770 F.3d 865, 874 (9th Cir. 2014) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)).
Starting from that foundation, the evaluating court then asks whether the plaintiff has offered a set of facts that plausibly support a claim for relief. "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." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). "Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of 'entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557; see also Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 2014) (differentiating between allegations consistent with a claim and allegations that make the claim plausible).
If a pleading satisfies that plausibility requirement, it survives a Rule 12(b)(6) motion, having accomplished a complaint's principal purposes of: (1) "contain[ing] sufficient allegations of underlying facts to give fair notice," thereby "enabl[ing] the opposing party to defend itself effectively"; and (2) rendering it fair "to require the opposing party to be subjected to the expense of discovery and continued litigation." Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).
B. Federal Rule of Civil Procedure 12(b)(7)
A court may dismiss a complaint if the pleading fails to name a party indispensable to the pending action. Fed. R. Civ. P. 12(b)(7); Fed. R. Civ. P. 19(a). When a party makes a motion under Rule 12(b)(7), the court undertakes a three-part inquiry. First, it asks if the absent party is "necessary (i.e., required to be joined if feasible) under Rule 19(a)." Salt River Project Agric. Improvement & Power Dist. v. Lee, 672 F.3d 1176, 1179 (9th Cir. 2012). If so, the court asks whether it is "feasible to order that the absent party be joined." Id. If it is not feasible to join the absent party, the court asks whether the case can proceed without it - and if not, dismisses the action. Id.
The burden of persuading the court that a party must be joined (or the case dismissed) falls to the movant. Makah Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir. 1990). Whether the movant may rely on evidence outside the pleadings (or judicially-noticeable matters) to carry its burden is a more difficult question, but not one presented by this case.
Superficially, the answer is clear: the court must "accept as true the allegation in [the] complaint and draw all reasonable inferences in [the] [p]laintiff's favor," just as with a motion under Rule 12(b)(6). Paiute-Shoshone Indians of Bishop Cmty. v. City of L.A., 637 F.3d 993, 996 n.1 (9th Cir. 2011). Presumably, therefore, no materials outside the pleadings are to be considered. That approach is subject to the criticism, however, that there is no reason to expect the pleadings will always, or even usually, make any mention whatsoever of an absent, but necessary, party. And the court of appeals's sole source for its rule is another of its cases - but one describing the standard for evaluating a Rule 12(b)(6) motion, not a Rule 12(b)(7) motion. See Transmission Agency of N. Cal. v. Sierra Pac. Power Co., 295 F.3d 918, 923 (9th Cir. 2002). Elsewhere, the standard seems to be that a district court may consider "affidavits of persons having knowledge . . . as well as other relevant extra-pleading evidence." 5C Charles Alan Wright, et al., Federal Practice & Procedure § 1359 (3d ed.).
III. DISCUSSION
The Court begins at the end, with Defendants' argument that Medrano's First Amended Complaint should be dismissed over her failure to join the co-owner of her house, an arguably indispensable party to the litigation. The Court then takes up the question whether Summit should be dismissed from the action with prejudice, because Medrano has not actually pled a claim against it in the First Amended Complaint. The Court next turns to the remainder of Defendants' arguments, beginning with their assertion that Medrano failed to state a claim under the Homeowners' Bill of Rights, and concluding with the argument that Medrano must tender the entirety of her defaulted debt to bring any of the claims pled in the First Amended Complaint.
A. Defendants do not carry the burden of persuading the Court that Medrano failed to join an indispensable party.
Defendants contend Medrano must join Placida Alvarado - a woman named as a joint tenant and co-borrower in the trust deed encumbering Medrano's house - lest Defendants run the risk of being sued again over the same matters by Alvarado (and subjected to a judgment inconsistent with this Court's). But it is not enough to say simply that Defendants run the risk of being subjected to inconsistent judgments in the allegedly indispensable co-borrower's absence; Defendants bear the burden of persuading the Court that the co-borrower is actually indispensable. Makah Indian Tribe, 910 F.2d at 558.
Defendants do not carry their burden. The first step of the requisite analysis asks the Court to consider whether Rule 19(a) makes Alvarado indispensable. Lee, 672 F.3d at 1179. A party is indispensable either if in its absence, "the court cannot accord complete relief among the existing parties," Fed. R. Civ. P. 19(a)(1)(A) - not the case here - or if the absent party "claims an interest relating to the subject of the action," Fed. R. Civ. P. 19(a)(1)(B), and one of two other conditions is met. The two conditions by which a party is indispensable under Rule 19(a)(1)(B) are met either if "disposing of the action" without the party claiming an interest "may . . . as a practical matter impair or impede" that party's "ability to protect the interest," Fed. R. Civ. P. 19(a)(1)(B)(i), or if disposing of the action without the absent party would "leave an existing party subject to a substantial risk of incurring . . . inconsistent obligations because of the interest," Fed. R. Civ. P. 19(a)(1)(B)(ii).
Alvarado has claimed no interest in the outcome of this action, and therefore need not be joined, regardless of the risk of inconsistent judgments. See United States v. Bowen, 172 F.3d 682, 689 (9th Cir. 1999) (affirming the district court's conclusion that an absent party who failed to claim an interest in the action could not be a required party under Rule 19(a)(1)(B)). In an attempt to clear that hurdle, Defendants impute to Alvarado the same interest a party to a contract typically has in litigation that could abrogate that contract. See generally Dawavendewa v. Salt River Project Agric. Improvement & Power Dist., 276 F.3d 1150, 1157 (9th Cir. 2002) ("[A] party to a contract is necessary, and if not susceptible to joinder, indispensable to litigation seeking to decimate that contract."); but see Anchorage v. Integrated Concepts & Research Corp., 1 F. Supp. 3d 1001, 1015-16 & n.107 (D. Alaska 2014) (holding that there is no per se rule that parties to a contract are indispensable parties to litigation over that contract). It is not clear, however, that Alvarado's interest in the outcome of this case is at all the same as a contracting party's interest in whether its contract survives litigation. Nothing before the Court demonstrates Alvarado is a party to any agreement with Defendants; the trustee's deed reflects only that Alvarado is the co-owner of the security for U.S. Bank's loan. (See Mot. Ex. A.)
Even though it is in accord with the Rule's plain text, the requirement that an absent party affirmatively claim an interest in the action before a court can require its joinder has been criticized as strange. See Zacharias v. U.S. Bank N.A., No. 14-02186 SC, 2014 WL 4100705, at *8 & n.6 (N.D. Cal. Aug. 20, 2014) (discussing criticisms of the Ninth Circuit rule). After all, an absent party may be avoiding the litigation purposefully for reasons that Rule 19 abhors, e.g., so she can bring another suit over the same property later, and subject an initially-prevailing defendant to a second, adverse judgment.
This is notwithstanding that the deed's definition of "Borrower" includes not only Medrano, but also Alvarado. The deed's definition of "Borrower" to include a co-owner of the security is insufficient to demonstrate conclusively (at least, without more) that the co-owner of the security was actually also a co-borrower of the loan. See, e.g., Lara v. Aurora Loan Servs. LLC, No. 12CV904-GPC (BLM), 2013 WL 1628955, at *5 (S.D. Cal. Apr. 16, 2013) ("However, the fact that [a] name appears on the [d]eed of [t]rust does not necessarily established that [the named person], in fact, is a co-borrower.").
Moreover, there are reasons why Alvarado may be affirmatively disinterested in litigating this matter - but they are not worth speculating about, as nothing in the record says anything about who Alvarado is, other than that she was Medrano's joint tenant. Suffice to say that on the record before the Court, Defendants have not demonstrated that Medrano failed to join an indispensable party to the litigation, as is their burden, and their Motion therefore fails on the first prong of the 12(b)(7) analysis.
B. Medrano's failure to plead a claim against Summit does not warrant dismissal with prejudice; it instead requires dismissal as to Summit with leave to amend.
Defendants ask the Court to dismiss Summit from the case, with prejudice, because Medrano failed to plead a claim against it. Such a failure hardly warrants dismissal with prejudice, however, as it could be cured easily by amendment. Sonoma Cnty. Ass'n of Retired Emps. v. Sonoma Cnty., 708 F.3d 1109, 1118 (9th Cir. 2013). Medrano responds that Summit must be named in litigation seeking to set aside the trustee's sale it conducted on U.S. Bank's behalf, and therefore should remain in the litigation - notwithstanding the fact Medrano has not pled any claims against it. See Wash. Mut. Bank v. Blechman, 157 Cal. App. 4th 662, 667-69 (2007) (noting that the lender and trustee "clearly" had a stake in the outcome of proceedings to invalidate the trustee's sale on foreclosure).
One cannot embroil a party in litigation (at least, not for long) simply by tacking its name on to a pleading without actually alleging it did something wrong. If Summit is an essential party to the litigation, Medrano should plead a claim against it - as the plaintiff in Washington Mutual Bank, which Medrano cites, did to the trustee in that case. See Resp'ts Br. at 6, Wash. Mut. Bank (No. B191125), 2007 WL 2154463 at *6. Medrano may correct this fault by filing a second amended complaint no later than December 29, 2014; otherwise, Summit will be dismissed from this action with prejudice.
Although a party's indispensability in a federal case is controlled by the Federal Rules of Civil Procedure rather than California state law, see Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 399 (2010) (reiterating that the Federal Rules of Civil Procedure govern in federal court, unless the rule at issue "exceeds statutory authorization or Congress's rulemaking power"), Washington Mutual Bank presents a useful example.
C. Dismissal with leave to amend is warranted as to some of Medrano's claims.
1. Medrano's Homeowners' Bill of Rights Claim is pled adequately.
California Civil Code section 2923.6 prohibits a mortgage servicer (e.g., Caliber), a mortgagee (e.g., U.S. Bank), or a trustee (e.g., Summit) from conducting a trustee's sale while a borrower has a pending complete application for a "first lien loan modification." Cal. Civ. Code § 2923.6(c). Medrano has alleged facts that, taken as true, indicate Caliber and U.S. Bank (the parties against which she made the claim) violated that statutory command. Defendants argue both that Medrano's allegations are insufficient, and, in essence, that they are belied either by other allegations in the First Amended Complaint, or by judicially-noticeable documents. Those arguments are unavailing.
Medrano alleges that on May 16, 2014, she submitted an application to apply for a loan modification. (FAC ¶ 21.) She further alleges she never received written notice that Caliber denied the application - a necessary step before conducting a trustee's sale of Medrano's house - even though she submitted a complete application. (Id. ¶ 44.) Defendants challenge the factual basis for the latter portion of the allegation, arguing it is conclusory because Medrano does not allege the constituents of a "complete" application - i.e., that it contained "all documents required by the mortgage servicer within the reasonable timeframes specified by the mortgage servicer." Cal. Civ. Code § 2923.6(h). Defendants ask too much. A truly conclusory statement looks something like this: "CALIBER, on behalf of U[.]S[.] BANK, caused an illegal, fraudulent and willfully oppressive sale of PLAINTIFF'S PROPERTY, in clear violation of Civil Code § 2924." (FAC ¶ 53) (emphases in original). See Twombly, 550 U.S. at 555 ("[A] formulaic recitation of the elements of a cause of action will not do . . . .").
What is the relevant difference between a conclusory allegation (FAC ¶ 53) on one hand, and a sufficient allegation (id. ¶ 44) on the other? The distinction can be a hard one to draw in formal terms. See Brownlee v. Conine, 957 F.2d 353, 354 (7th Cir. 1992) (referring to the term "conclusory," in the context of pleading, as an ill-defined, "overused lawyers' cliché"); see generally 5 Charles Alan Wright, et al., Federal Practice & Procedure § 1218 (3d ed.) (noting that "years of frustrating experience" show that it is "difficult, if not impossible, to draw meaningful and consistent distinctions between or among 'evidence,' 'facts,' and 'conclusions'" - concepts that "tend[] to merge to form a continuum [with] no readily apparent dividing markers . . . to separate them"). Better instead to approach the distinction in practical terms. To be effective, a plaintiff's complaint need only offer a set of facts that put a defendant on notice of a legal wrong the plaintiff alleges plausibly that the defendant committed. See Twombly, 550 U.S. at 556-57 (holding that factual allegations must be enough to raise a claim above a speculative level, and to a plausible one); Skaff v. Meridien N. Am. Beverly Hills, LLC, 506 F.3d 832, 841 (9th Cir. 2007) (noting that "the purpose of a complaint" is "to give the defendant fair notice of the factual basis of the claim").
Looking through that most basic lens, there is no reason to force Medrano to break the term "complete application" into its constituent parts: Defendants know what "complete application" means, they know whether they can admit or deny that Medrano's application was complete, and they probably know precisely what evidence to deploy in support of an argument that Medrano's application was incomplete. See Doe v. Holy See, 557 F.3d 1066, 1081-82 (9th Cir. 2009) (per curiam) ("Although there is undoubtedly a line beyond which the legal definition of a commonly used term is so complex or contentious that failure to allege each element of the definition would prevent a defendant from understanding the factual basis of a claim, use of the word 'employee' falls well short of that line.").
In light of Holy See, the Court respectfully declines to follow Stokes v. CitiMortgage, Inc., No. CV 14-00278 BRO(SHx), 2014 WL 4359193, at *7 (C.D. Cal. Sept. 3, 2014), on this point.
On the issue of evidence tending to undermine Medrano's claim, Defendants contend an April 30, 2014 letter attached to the First Amended Complaint demonstrates that Medrano received the requisite notice of the denial of her application - and therefore that she pled herself out of her Homeowners' Bill of Rights Claim. (See FAC Ex. B.) The April 30 letter, however, cannot plausibly be a denial of an application Medrano filed weeks later, on May 16 - and it is Caliber's treatment of the May 16 application on which Medrano's claim is grounded. (See FAC ¶ 44.) More problematic for Medrano's Homeowners' Bill of Rights Claim, Defendants argue, is evidence that Medrano has modified the loan at issue twice before, and defaulted again after each modification: section 2923.6 ceases to apply once a borrower accepts and defaults on a modification. Cal. Civ. Code § 2923.6(c)(3).
That argument fails because Medrano's pleadings make no reference to prior modifications or defaults, and the Court is bound to review only the pleadings and any judicially-noticeable documents in deciding a motion to dismiss. Harris, 770 F.3d at 874; see, e.g., Corvello v. Wells Fargo Bank, NA, 728 F.3d 878, 885 (9th Cir. 2013) (per curiam) (noting that while facts in the defendant's possession might indicate it properly denied plaintiffs' loan modifications, they could not be considered at the motion to dismiss stage). Defendants ask the Court to take judicial notice of two recorded documents rescinding prior notices of defaults (see Mot. Exs. E & H) as evidence that Medrano modified her loan previously, but those documents say nothing about why the notices of default were rescinded, and the Court cannot assume it was because Medrano modified her loan. See generally Lee v. City of L.A., 250 F.3d 668, 688-90 (9th Cir. 2001) (exploring the limits of judicial notice in deciding a motion to dismiss - and reversing the district court for exceeding them).
Although the Court cannot dismiss Medrano's Homeowners' Bill of Rights Claim on the basis of evidence currently outside its ken, it can observe that Medrano's counsel has both an obligation to investigate his client's allegations and an obligation not to plead a claim that he learns is without factual or legal support. Fed. R. Civ. P. 11(b). If counsel is aware of facts that bar Medrano's claim, and pursues the claim without a non-frivolous argument that the claim is nevertheless viable, counsel treads on perilous ground. See Fed. R. Civ. P. 11(c). The Court denies Defendants' Motion as to Medrano's Homeowners' Bill of Rights Claim, but Medrano should consider the foregoing if she files a second amended complaint (per Section III.B. of this Order).
2. Medrano's Wrongful Foreclosure Claim fails to allege the required tender adequately.
Defendants contend, correctly, that before seeking to set aside a wrongful foreclosure, a plaintiff must either tender the entire amount of the defaulted debt, Nguyen v. Calhoun, 105 Cal. App. 4th 428, 439 (2003), or raise one of four exceptions to the tender requirement, Lona v. Citibank, N.A., 202 Cal. App. 4th 89, 112-13 (2011). Medrano alleges she "is willing and able to tender amounts due on the loan at the time of the foreclosure sale, or alternatively is excused from doing so." (FAC ¶ 57.) That allegation is insufficient.
First, Medrano must offer to tender more than the "amounts due on the loan at the time of the foreclosure sale"; she must tender the entirety of the defaulted debt, without qualification. See Nguyen, 105 Cal. App. 4th at 439 (recalling that the rules governing tender are applied strictly); see, e.g., Fonteno v. Wells Fargo Bank, N.A., 228 Cal. App. 4th 1358, 1372 (2014) (finding an allegation that "plaintiffs were ready, willing, and able to make certain limited payments based on their own view of the law" insufficient to satisfy the tender requirement). Second, whatever the boundaries of the definition of the word "conclusory," see supra Section III.A.1, it surely includes an allegation stating only that Medrano is excused from complying with the tender rule, without any explanation why - particularly since there are multiple ways in which a borrower may be excused from compliance. Medrano's Opposition does little to clarify, offering only that "the specific circumstances of this case make it inequitable to enforce the debt" against Medrano. (Opp'n at 12-13.) Consequently, Medrano's Wrongful Foreclosure Claim is dismissed, with leave to amend.
3. Medrano's Fraudulent Misrepresentation Claim is pled sufficiently.
To state a claim for fraudulent misrepresentation, Medrano must allege: (1) a misrepresentation that (2) Caliber knew was false, but (3) made anyway, with the intent of inducing Medrano to rely on it; (4) that Medrano did rely on it, and (5) that she was thereby damaged. Conroy v. Regents of Univ. of Cal., 45 Cal. 4th 1244, 1255 (2009). In federal court, those allegations must be made with particularity as to "the circumstances constituting fraud," though "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). In practice, that means Medrano must "identify the who, what, when, where, and how of the misconduct charged, as well as what is false or misleading about the purportedly fraudulent statement, and why it is false." Salameh v. Tarsadia Hotel, 726 F.3d 1124, 1133 (9th Cir. 2013) (internal quotation marks and citation omitted).
Both parties treat the pleading standard for fraud as if it were a question of California law, citing numerous California cases to divine it. (See Mot. at 10; Opp'n at 7.) In federal court, pleading standards are controlled by federal rules. Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009).
Medrano alleges that on July 8, 2014, Natasha, a Caliber representative, told her that there would be no trustee's sale of Medrano's house the next day. (FAC ¶ 25.) Belying the representation, Medrano's house went on the block on July 9, and sold. (Id. ¶ 28.) Medrano claims that had Natasha not told her the trustee's sale was off, then Medrano would have taken some action to prevent the sale of her house (e.g., borrowed the money necessary to cure her default, or sought emergency legal relief). (Id. ¶ 65.) Those allegations evince the requisite level of specificity to satisfy Rule 9(b).
All that remains is to allege is that Caliber knew it was making false representations, but did so anyway, for the purpose of inducing Medrano to do nothing - that is, that Caliber had the necessary scienter to commit fraud. Medrano alleges both of those things (id. ¶¶ 63-64), albeit in conclusory terms. But then, Rule 9(b) allows general allegations of scienter - so general, in fact, that Medrano may satisfy the Rule "simply by saying that scienter existed." In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547 (9th Cir. 1994) (en banc), superseded by statute on other grounds, Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737, as recognized in Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th Cir. 2009).
Nonetheless, Defendants contend Medrano failed to allege sufficiently "a falsity, knowledge of falsity, justifiable reliance or damages resulting from the alleged misrepresentation," or "a substantial change in position." (Mot. at 10.) It is hard to credit Defendants' argument, given Medrano did allege those things, clearly. Defendants' next argument is therefore that Medrano's allegations - e.g., that she would have borrowed money on an emergency basis to avert the trustee's sale - are incredible. Defendants, however, offer no apposite authority by which the Court can assume Medrano's allegations are false. Instead, they argue Medrano's allegation that she could have taken an emergency loan is implausible on its face, under Twombly. (See Mot. at 10.) That, however, is a misreading of Twombly, which actually says that a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. The difference, of course, is that Defendants' reading directs the Court to opine on the truth or falsity of a pled fact, while Twombly actually commands the Court to take all the facts pled as true, id. at 556, and then inquire whether the whole narrative plausibly supports a claim for relief. In re Zynga Privacy Litig., 750 F.3d 1098, 1103 (9th Cir. 2014).
Defendants contend that Medrano was unjustified in her reliance on Natasha in the absence of a recorded document rescinding the trustee's sale. This argument is not persuasive, either.
Medrano spoke to Natasha the day before the sale was to take place. In the absence of authority holding that one must go to the county recorder and search for a notice of rescission to determine whether one's house is going to be sold in a day, the Court will not conclude as a matter of law that Medrano's reliance on Natasha's statement was unjustifiable in these circumstances.
Nor is the Court much persuaded by Defendants' argument that Medrano pled herself out of a Fraudulent Misrepresentation Claim by alleging that the sale was re-set for July 9 the morning after Medrano talked to Natasha, and therefore that Natasha's statement was true at the time she made it. The argument is based on a false predicate: Medrano did not allege the sale was re-set for July 9 after her conversation with Natasha; Medrano alleged that she was told the sale was re-set for July 9 after she spoke with Natasha. (See FAC ¶ 29.) Alleging that Caliber said something is not the same as alleging the truth of that thing.
Finally, Defendants argue that Medrano "does not plead damages resulting from Caliber's claimed representation," and that her damages instead resulted from her "inability to make her loan payments." (Mot. at 11.) That view of causation is myopic. There is no way of knowing at this juncture what would have happened to Medrano had she attempted to take emergency measures to avert the trustee's sale, and therefore no way to say with certainty - in the face of her allegation otherwise - that Medrano was not damaged as a result of losing the opportunity to take such measures. See West v. JPMorgan Chase Bank, N.A., 214 Cal. App. 4th 780, 795 (2013) (finding causation pled adequately when the plaintiff alleged reliance on a lender's misrepresentations led her "to forego [sic] taking legal action to stop the foreclosure sale"). Accordingly, Defendants' Motion is denied as to Medrano's Fraudulent Misrepresentation Claim.
4. Medrano's Negligent Misrepresentation Claim is, ipso facto, pled sufficiently.
"The elements of negligent misrepresentation are similar to intentional fraud except for the requirement of scienter . . . ." Charnay v. Cobert, 145 Cal. App. 4th 170, 184 (2006). As Medrano has stated a claim for fraudulent misrepresentation adequately, she has also pled negligent misrepresentation adequately.
5. Medrano has not pled a promise sufficient to ground her Promissory Estoppel Claim.
Based on Natasha's representation that the July 9 trustee's sale was canceled, Medrano alleges that Caliber made her a promise for which it should be held responsible in the breach. A successful promissory estoppel claim requires the injured party to have been damaged by its reliance on a clear and unambiguous, but broken, promise - as the welching promisor should have reasonably foreseen the injured party would. Jones v. Wachovia Bank, 230 Cal. Appl 4th 935, 945 (2014). The problem with Medrano's claim is that Natasha's representation was not a clear and unambiguous promise - it was just the statement of a fact. To be sure, the statement might have been false, and hence sufficient basis for a tort claim of misrepresentation, see supra Section III.C.4, but it was not a promise that Caliber would do (or forgo) anything at all. Accordingly, Medrano's Promissory Estoppel Claim is dismissed, with leave to amend.
6. Medrano's Negligence Claim does not fail as a matter of law.
Defendants argue that Medrano's Negligence Claim fails because: "(1) lenders and servicers do not owe a duty of care to borrowers; and (2) the claim is barred by the economic-loss doctrine." (Mot. at 13.) Perhaps Defendants realized the error in their second argument, as they abandoned it in their Reply. The error: California's economic loss rule has absolutely no bearing on this case; it draws a distinction "between transactions involving the sale of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts." Robinson Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 988 (2004) (internal quotation marks and citation omitted).
Defendants' first argument is better taken, historically. Until recently, California's courts have tended to follow the general rule that "a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money." Nymark v. Heart Fed. Savings & Loan Ass'n, 231 Cal. App. 3d 1089, 1096 (1991). No duty; no actionable negligence. Beacon Residential Cmty. Ass'n v. Skidmore, Owings & Merrill LLP, 59 Cal. 4th 568, 573 (2014). Recently, however, the tide has turned. The California courts of appeal now recognize that lenders cannot offer modifications, generally, and then claim they have no duty to avoid processing the applications for those modifications in a slipshod manner. See, e.g., Alvarez v. BAC Home Loans Servicing, L.P., 228 Cal. App. 4th 941, 948-51 (2014) (imposing a duty of care on a loan servicer). Further, while their unpublished opinions do not bind this Court, other federal courts - including the Ninth Circuit Court of Appeals - have taken notice of the shift in the state courts. See, e.g., Yau v. Deutsche Bank Nat'l Trust Co. Americas, 525 F. App'x 606, 608-09 (9th Cir. 2013); Shapiro v. Sage Point Lender Servs., No. EDCV 14-1591-JGB(KKx), 2014 WL 5419721, at *8-*10 (C.D. Cal. Oct. 24, 2014).
Hence, the Court will not dismiss Medrano's Negligence Claim on either basis proffered by Defendants.
7. Medrano's Unfair Competition Law Claim fails as a matter of law.
A plaintiff can plead a violation of the UCL, Cal. Bus. & Prof. Code §§ 17200, et seq., by alleging that a defendant committed an unlawful act, engaged in an unfair business practice, or committed a fraudulent act. See Aryeh v. Canon Bus. Solutions, Inc., 55 Cal. 4th 1185, 1196 (2013) ("The UCL affords relief from unlawful, unfair, or fraudulent act . . . ."). But succeeding on a UCL claim allows a plaintiff to obtain only restitution or injunctive relief - no damages. See Cel-Tech Commc'ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 179 (1999) ("Prevailing plaintiffs are generally limited to injunctive relief and restitution."). Put simply, the UCL exists to force culpable defendants to stop committing bad acts, and repay the victims of those acts strictly what the defendants gained as a result of them. See Cal. Bus. & Prof. Code § 17203 (empowering the courts to enjoin unfair competition and "to restore to any person in interest any money or property . . . which may have been acquired by means of such unfair competition"); Kwikset Corp. v. Super. Ct., 51 Cal. 4th 310, 336 (2011) (noting that when a defendant causes a plaintiff's loss without receiving a corresponding gain, the plaintiff may seek an injunction to stop the defendant's offending business practice; if the plaintiff loses money or property to the defendant, the defendant also can be ordered to provide restitution); see, e.g., Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1152 (2003) (holding that defendants cannot be ordered under the UCL to make a "nonrestitutionary disgorgement of profits").
Medrano's UCL Claim, however, is tethered neither to a request for an injunction nor a demand for restitution; she alleges instead that Caliber's UCL violation(s) "damaged [her] by the amount to be determined at trial, but not less than $500,000.00." (FAC ¶ 90.) A claim for damages is not a UCL claim. Medrano's UCL Claim is therefore dismissed, with leave to amend.
D. Tender must be pled only for claims that would have the effect of setting aside the trustee's sale.
Finally, Defendants argue that because Medrano did not tender the entire debt owed, see supra Section III.C.2, she "lacks standing to challenge the foreclosure sale or to plead her seven causes of action - claims implicitly integrated with foreclosure." (Mot. at 16.) Setting aside the question whether it is proper to use the word "standing" in this context, see generally Davis v. Passman, 442 U.S. 228, 239 n.18 (1979) (distinguishing standing from among other terms), Defendants ask too much. The tender requirement is an equitable one, meant to ensure that a borrower who seeks equity - rescission of a foreclosure - first does equity by making good on the debt for which the lender foreclosed on the property. Multani v. Witkin & Neal, 215 Cal. App. 4th 1428, 1454 (2013).
Accordingly, at this juncture, the tender requirement applies only to Medrano's attempts to secure equitable relief (i.e., rescission of the trustee's sale), not to her attempts to collect damages stemming from Caliber's alleged violation of the Homeowners' Bill of Rights, Mabry v. Super Ct., 185 Cal. App. 4th 208, 225-26 (2010), or to any other violation of law for which Medrano can properly trace damages to Defendants' conduct in the handling of her loan modification application. See Stokes v. CitiMortgage, Inc., No. CV 14-00278 BRO(SHx), 2014 WL 4359193, at *9 (C.D. Cal. Sept. 3, 2014) (reserving the question whether to apply the tender rule broadly for a later juncture in the proceedings).
Defendants note that Mabry excludes from the tender requirement section 2923.5 of the Civil Code - not section 2923.6, which is the basis of Medrano's action. (Reply at 10.) While that is so, Mabry's rationale is just as compelling in an action under section 2923.6, if not more. Like section 2923.5, section 2923.6 is meant to govern a mortgage servicer's conduct before foreclosure. It makes equally little sense to require tender under either statute, as in both cases "it would defeat the purpose of the statute to require the borrower to tender the full amount of the indebtedness prior to any enforcement" of a procedural right that inheres before foreclosure. Mabry, 185 Cal. App. 4th at 225. (While Mabry makes a point of distinguishing section 2923.5 from section 2923.6, Mabry, 185 Cal. App. 4th at 222, the version of section 2923.6 it distinguishes is substantively different from the current version.) Putting an even finer point on it, the California Legislature created a statutory remedy for violations of section 2923.6, and that remedial provision makes no mention of a tender requirement. See Cal. Civ. Code § 2924.12(b). --------
IV. CONCLUSION
For the foregoing reasons, Defendants' Motion to Dismiss is GRANTED IN PART. Medrano may file a second amended complaint, in conformity with this Order, on or before January 5, 2015. Otherwise: • Defendant Summit Management Company, LLC, will be dismissed from this action, with prejudice; • Medrano's Wrongful Foreclosure Claim will be dismissed with prejudice; • Medrano's Promissory Estoppel Claim will be dismissed with prejudice; and • Medrano's UCL Claim will be dismissed with prejudice.
IT IS SO ORDERED.