Opinion
Case No. CV 15-02436 DDP (AJWx)
11-02-2015
R. MORA; L. MORA, Plaintiffs, v. US BANK also known as US BANK, N.A. also known as US BANK HOME MORTGAGE also known as US BANK. N.A., INC., Defendants.
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS WITH LEAVE TO AMEND
[Dkt. No. 43]
Presently before the Court is Defendant US Bank's Motion to Dismiss Plaintiffs' First Amended Complaint. (Dkt. No. 43.) Having considered the parties' submissions, the Court adopts the following order.
I. BACKGROUND
The facts of this case are laid out in the Court's Order granting Defendant's previous Motion to Dismiss with leave for Plaintiffs to amend. (Dkt. No. 30.) Plaintiffs then filed a First Amended Complaint alleging four causes of action against Defendant based on the Equal Credit Opportunity Act, California's Homeowner Bill of Rights and unfair competition laws, and for declaratory relief. Defendant has again moved to dismiss the complaint.
II. LEGAL STANDARD
A 12(b)(6) motion to dismiss requires a court to determine the sufficiency of the plaintiff's complaint and whether or not it contains a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Under Rule 12(b)(6), a court must (1) construe the complaint in the light most favorable to the plaintiff, and (2) accept all well-pleaded factual allegations as true, as well as all reasonable inferences to be drawn from them. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001), amended on denial of reh'g, 275 F.3d 1187 (9th Cir. 2001); Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998).
In order to survive a 12(b)(6) motion to dismiss, the complaint must "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). However, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 678. Dismissal is proper if the complaint "lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory." Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008); see also Twombly, 550 U.S. at 561-63 (dismissal for failure to state a claim does not require the appearance, beyond a doubt, that the plaintiff can prove "no set of facts" in support of its claim that would entitle it to relief). A complaint does not suffice "if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The Court need not accept as true "legal conclusions merely because they are cast in the form of factual allegations." Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003).
III. DISCUSSION
A. Violation of Equal Credit Opportunity Act ("ECOA")
In their First Amended Complaint ("FAC"), Plaintiffs claim that Defendant "discriminated against Plaintiffs in violation of the ECOA by, with knowledge of their minority status, less than $50,000 annual income, declining income and wealth, L. MORA's receipt of public assistance, L. MORA's lack of work, the business's loss of income, mounting bills, and threat to Plaintiffs' income going forward, insisting on full and immediate payment of a mortgage balance, on pain of foreclosure." (FAC ¶ 40.) Plaintiffs allege that Defendant enforced certain policies that "had a disparate impact on Hispanics in general, and Plaintiffs, in particular, and which caused Plaintiffs to have to fend off two foreclosures, file two bankruptcies, incur attorney's fees, suffer damage to credit, creditworthiness, and reputation, emotional distress, and further damages within the jurisdiction of this court, according to proof." (Id.)
Plaintiffs allege that Defendants were acting pursuant to three policies and that these policies "were either explicitly intended to, or which had the effect of, denying mortgage loan modification relief to Plaintiffs as Hispanics, and to other Hispanics." (FAC ¶ 15.) The first, "Policy I was informally known as 'Manufacture Default,' which consisted of refusing to affirmatively (i.e., without solicitation) offer relief, such as loan modification or short sale, to those with incomes of under $50,000 between 2007 and 2012." (Id. ¶ 16 (emphasis omitted).) The second policy, "Policy No. 2, known as 'Do Not Negotiate,' which consisted of refusing to negotiate in good faith, when approached [by] borrowers who earned under $50,000 per year, and who sought to renegotiate their mortgage." (Id. ¶ 17 (emphasis omitted).) The third and final policy, "Policy No. 3, informally known as 'Seek Foreclosure Against Those to whom no Affirmative Relief was Offered, and to Whom Renegotiation was Denied,' which would be implemented upon those whom BANK refused to affirmatively offer loan modification, or whom it rejected for loan modification or other relief." (Id. ¶ 18 (emphasis omitted).)
Plaintiffs rely on these policies as a basis for their disparate impact claim, but do not have proof that the policies exist. Instead, Plaintiffs contend that "[t]he existence of [the policies] can be gleaned from" facts found in their attached exhibits. (Id. ¶¶ 16-18.) Because this is a motion to dismiss, the court accepts as true Plaintiffs' allegations of material fact.
In Defendant's Motion to Dismiss ("MTD"), Defendant argues "that Plaintiffs' FAC fails to sufficiently allege (1) actual disparate impact and (2) facts demonstrating a causal connection between the alleged Policies and the purported disparate impact." (MTD at 11:5-7.) Defendant also argues that "nowhere in the FAC do Plaintiffs state their basis for asserting the existence of the purported Policies." (Id.) Defendant further argues that Plaintiffs have suffered no actual damages caused by US Bank because "Plaintiffs have no right to a loan modification or short-sale." (Id., at 12:4-6.)
The ECOA provides that "[i]t shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age . . .; (2) because all or part of the applicant's income derives from any public assistance program." 15 U.S.C. § 1691(a). "To state a claim for disparate impact discrimination under . . . the ECOA a plaintiff must plead (1) the existence of outwardly neutral practices; (2) a significantly adverse or disproportionate impact on persons of a particular type produced by the defendant's facially neutral acts or practices; and (3) facts demonstrating a causal connection between the specific challenged practice or policy and the alleged disparate impact." Hernandez v. Sutter W. Capital, No. C 09-03658 CRB, 2010 WL 3385046, at *3 (N.D. Cal. Aug. 26, 2010). This standard requires a plaintiff to plead "the existence of outwardly neutral policies and that such policies have had a disparate negative impact on [a class] generally and [the plaintiff] specifically." Id. at *4.
Here, in granting Plaintiffs leave to amend their complaint, the Court stated, "Plaintiffs can state a disparate impact claim only if they can allege facts (1) allowing an inference that the income threshold actually has a disparate impact, and (2) showing that Plaintiffs themselves were subject to the policy and harmed by it." (Dkt. No. 30 at 19.) Plaintiffs have now pled that they earned under $50,000, thus bringing them within the scope of the alleged polices. (FAC ¶ 16(A)(iii).) But Plaintiffs have failed to plead facts that would support the conclusion that the alleged income policy had a disparate impact.
Plaintiffs quote a report titled "From Foreclosure to Re-Redlining: How America's largest financial institutions devastated California communities," for the proposition that "the default rate for African American and Latino homeowners (was) more than twice that of whites, and that approximately two-thirds of all foreclosures in California have been among African American, Latino and Asian American borrowers." (FAC ¶ 39 (citing Ex. 14 at 19).) Although this report provides evidence that minorities have a higher rate of foreclosures in California, it does not show that this higher rate of foreclosures is a result of Defendant's alleged policies. Plaintiffs also cite Exhibits 11, 12, 13, and 16 (without any indication which particular pages or sections in the hundreds of pages of appended material they intend to refer), and state, "This is the very essence of disparate impact." (Id.)
But Plaintiffs merely allege, in conclusory language, that Defendant's polices had a disparate impact on Plaintiffs. That kind of conclusory allegation is insufficient at this stage; Plaintiffs must plead facts that "show 'a significant disparate impact on a protected class caused by a specific, identified . . . practice or selection criterion.'" Ramirez v. Greenpoint Mortg. Funding, Inc. 633 F. Supp. 2d 922, 927 (N.D. Cal. 2008) (quoting Stout v. Potter, 276 F.3d 1118, 1121 (9th Cir. 2002)).
Further, Plaintiffs' reliance on their attached exhibits is misplaced. For example, Plaintiffs cite to Exhibit 14 for the proposition that "in the Los Angeles market, about 20% more Hispanics were denied refinance" in support of their disparate impact claim. (FAC ¶ 17.) However, refinancing and loan modifications are not the same thing, see 12 C.F.R. § 226.20, and Plaintiffs here sought to modify their loan as a result of financial hardship. (FAC ¶ 4.) Because Plaintiffs were seeking to modify rather than refinance their loan, the attached statistical studies regarding refinancing are insufficient to state a claim.
Specifically, Plaintiffs rely heavily on Exhibits 13 and 14 to show that Defendant's policies had a disparate impact on Hispanic borrowers. However, when the Court reviewed the exhibits, it was clear that they do not support the conclusions alleged by Plaintiffs. Exhibit 13 discusses Defendant's denial of conventional home loans and refinancing to minorities, but it does not discuss loan modifications. Additionally, while Exhibit 14 acknowledges that "California cities experienced fewer loan modifications per number of foreclosed loans than the U.S. as a whole," this does not support Plaintiffs' disparate impact claim. (See Ex. 14 at 31.) Instead, Exhibit 14 states that there is very little data on loan modification available, and no where does it state that Hispanics received fewer loan modifications as compared to other borrowers. (Id. at 30.) Further, Plaintiffs do not always indicate which parts of the exhaustive amount of exhibits attached to their FAC actually do support their arguments. (See, e.g., FAC ¶ 17(C) (simply stating, "the recorded statistics fully support this; Exh. 13.").)
For the reasons discussed above, Plaintiffs have failed to sufficiently plead facts that would support a disparate impact claim. Although Plaintiffs have pled the existence of facially neutral policies, Plaintiffs fail to state facts that show these policies disproportionately impacted Hispanic borrowers. Therefore, Plaintiffs, ECOA claim must be dismissed.
B. Violation of Homeowner Bill of Rights
Plaintiffs also allege Defendant violated the California Homeowner's Bill of Rights ("HBOR") under California Civil Code section 2924.11(a). In granting Defendant's first Motion to Dismiss, the Court dismissed Plaintiffs' Homeowner's Bill of Rights Claims without prejudice. The Court acknowledged that "the pleadings could be amended to state a claim for damages (if the Defendant forecloses) or for injunctive relief (if Plaintiffs pursue some sort of foreclosure alternative with Defendant)." (Dkt. No. 30 at 13.)
In the FAC, Plaintiffs pled under California Civil Code section 2924.11(a), which concerns recording a notice of default after a short sale was approved. Defendant points out that "the only notice of default . . . was recorded in July of 2011." (MTD at 13.) Because Plaintiffs state that Defendant "gave written approval to a short sale of the subject property" in March 2014 (see FAC ¶ 12), the notice of default was recorded before the short sale was approved and therefore Plaintiffs' claim under Civil Code section 2924.11(a) cannot stand.
Plaintiffs accept Defendant's statement about the timing of the notice of default and request to change the claim to a violation of Civil Code section 2924.11(d) in their Opposition to the Motion to Dismiss. (Opp'n Mot. Dismiss at 14:6-10.) Section 2924.11(d) concerns the failure to rescind or cancel a notice of default after a short sale has been approved. A lender must "record a rescission of a notice of default or cancel a pending trustee's sale" after "the short sale has been approved by all parties and proof of funds or financing have been provided to" the lender. Cal. Civ. Code § 2924.11(d). Here, Plaintiffs have not pled sufficient facts to state a claim under Civil Code section 2924.11(d) because they fail to show that they provided proof of funds or financing to Defendant, thus requiring Defendant to rescind the notice of default. Therefore, Plaintiffs' HBOR claim is dismissed with leave to amend as to § 2924.11(d) if Plaintiffs have facts to show that they did offer the necessary proof.
C. Violation of California Unfair Competition and Unfair Trade Practices Law
Plaintiffs additionally bring a cause of action for violation of California's unfair competition law ("UCL") under California Business and Professions Code section 17200. (FAC at 24:15-17.) Plaintiffs contend that Defendant's "refusal to grant relief on the mortgage loan, and their fraudulent, unfair, and dishonest behavior connected with this refusal, in violation of the ECOA, and the Homeowner Bill of Rights, constitutes unfair conduct and unfair business practices." (FAC ¶ 60.)
Defendant argues that Plaintiffs fail to state a claim for unfair competition because they "fail to properly allege the violation of any other law" and "to whatever extent Plaintiffs attempt to bring claims under the UCL's 'unfair' or 'fraudulent' prong, their UCL claim is inadequately pled." (MTD at 14:24-25, 15:5-6.)
The UCL "is not confined to anticompetitive business practices, but is also directed toward the public's right to protection from fraud, deceit, and unlawful conduct. Thus, California courts have consistently interpreted the language of section 17200 broadly." Hewlett v. Squaw Valley Ski Corp., 54 Cal. App. 4th 499, 519 (1997) (citations omitted). A defendant violates the UCL when they engage in an "act or practice [that] is unlawful, unfair, fraudulent or in violation of section 17500." South Bay Chevrolet v. General Motors Acceptance Corp., 72 Cal. App. 4th 861, 878 (1999). "'The 'unlawful' practices prohibited by . . . section 17200 are any practices forbidden by law . . . . [The statute] 'borrows' violations of other laws and treats them as unlawful practices independently actionable under section 17200 et seq.'" (Id. at 880 (quoting Hewlett, 54 Cal. App. 4th at 531-532).)
Here, Plaintiffs cannot rely on the unlawful prong of the UCL because they have failed to allege facts sufficient to show Defendant violated any law. Because Plaintiffs' ECOA and HBOR claims fail, they cannot state a claim for violation of the UCL based on the unlawful prong. But because Plaintiffs have been given leave to amend their HBOR claims, leave to amend is granted here under the unlawful prong of the UCL.
Additionally, Plaintiffs have not sufficiently pled facts to support a claim for violation of the UCL under the "unfair" or "fraudulent" prong. Establishing a claim for fraud under the UCL "requires a showing [that] members of the public 'are likely to be deceived.'" South Bay Chevrolet, 72 Cal. App. 4th at 888 (quoting Saunders v. Superior Court, 27 Cal. App. 4th 832, 839 (1994)). Plaintiffs have merely alleged that Defendants' "fraudulent, unfair, and dishonest behavior connected with this refusal . . . constitutes unfair conduct and unfair business practices." (FAC ¶ 60.) This conclusory statement is insufficient to support a claim. Additionally, in Plaintiffs' Opposition, they indicate that their UCL claim is based on "Defendant's breach of law" and therefore the Court need not address further the claims as they relate to the unfair or fraudulent prong. (Opp'n Mot. Dismiss at 14:22.)
D. Declaratory Relief
Plaintiffs also seek declaratory relief for "a judicial determination of their rights, including their right to amend this First Amended Complaint to add further civil rights and/or other relief." (FAC ¶ 66.) However, as discussed above, Plaintiffs were "granted leave to amend the complaint solely as to the disparate impact claim under ECOA and any related claim under Cal. Bus. & Prof. Code § 17200." (Dkt. No. 30 at 20.) Because Plaintiffs were not granted leave to amend with respect to a claim for declaratory relief, this cause of action is dismissed.
IV. CONCLUSION
For the reasons stated above, the Court GRANTS Defendant's Motion to Dismiss. Plaintiffs have leave to amend the HBOR claim under 2924.11(d) and any UCL claim as it relates to a violation of HBOR, as detailed above. The Second Amended Complaint shall be filed within fourteen (14) days from the date of this order. IT IS SO ORDERED. Dated: November 2, 2015
/s/
DEAN D. PREGERSON
United States District Judge