Court: District Court, N.D. California; October 26, 2012; Federal District Court
On July 31, 2012, Ted F. Harvey filed an amended complaint in a mortgage foreclosure case against Bank of America N.A. (BOA). Harvey alleges that BOA encouraged him to stop making mortgage payments to qualify for a loan modification under the Home Affordable Modification Program (HAMP), but subsequently denied his application, imposed late and attorney fees, damaged his credit, and initiated foreclosure proceedings. No foreclosure sale has occurred yet.
The amended complaint includes nine claims: violation of the Equal Credit Opportunity Act (ECOA), breach of the implied covenant of good faith and fair dealing, contract reformation, promissory estoppel, wrongful foreclosure under California law, false light invasion of privacy, intentional misrepresentation, negligent misrepresentation, and violation of California's Unfair Competition Law (UCL).
The Court is considering two pending motions from BOA: a motion to dismiss the amended complaint and a motion to strike portions of it. Both motions are fully briefed and suitable for decision without oral argument. The Court has granted in part and denied in part the motion to dismiss, while denying the motion to strike.
The background indicates that Harvey refinanced his mortgage with Countrywide Home Loans in 2005. By March or April 2009, he was current on payments and had excellent credit when he contacted BOA for a loan modification. He alleges that an agent, Michael Z. Hollander, assured him he would qualify for HAMP if he missed payments. Acting on this advice, Harvey stopped making payments and submitted a loan modification request in August 2009. He claims to have received unclear responses about the status of his application and was later told by another representative, Grace Garo, that his modification request had been erroneously denied, despite qualifying for HAMP. When he received follow-up forms, they were for a different program, the National Home Ownership Retention Program (NHRP).
Plaintiff rejected a loan modification offer from Defendant due to its unfavorable terms compared to a HAMP modification and asserts that he would not have delayed payments to pursue an NHRP offer. He contacted a BOA representative named 'Shayna,' who informed him he was denied a HAMP modification because the property was not his primary residence, a claim Plaintiff contests as erroneous, citing over twenty-five years of residence and extensive correspondence with Defendant. Shayna allegedly encouraged him to reapply for a HAMP modification, which he did, receiving the application on June 3, 2010. However, Defendant denied his application on January 6, 2011, and subsequently refused to accept his regular payments, despite charging him late fees and reporting his late payments to credit bureaus, harming his credit rating. Defendant claimed Plaintiff was responsible for penalties accrued during the modification application process. On March 1, 2011, a notice of default was recorded for the property, followed by a notice of trustee sale set for June 23, 2011, which has since been postponed. Plaintiff filed a complaint in California Superior Court in early 2012, later requesting a voluntary dismissal, which was granted. He subsequently filed an initial complaint in federal court on June 22, 2012, which Defendant moved to dismiss, but Plaintiff responded with an amended complaint. The legal standard for dismissal under Federal Rule of Civil Procedure 12(b)(6) is outlined, emphasizing the need for a cognizable legal theory and sufficient factual allegations to support a claim. Courts must accept well-pleaded facts as true while not extending this assumption to legal conclusions.
Threadbare recitals and conclusory statements do not meet the pleading requirements for a cause of action. Allegations must provide detailed notice to the opposing party about the nature of the claim and be plausible enough to warrant discovery expenses. A heightened standard applies for fraud-related claims, necessitating specifics regarding the misconduct and its misleading aspects. The Defendant’s motion to dismiss rests on three main arguments: (1) Plaintiff must plead tender to challenge the non-judicial foreclosure, which he has not done; (2) all claims arise from the denial of a HAMP application, which lacks a private right of action; and (3) individual claims fail to state a valid cause of action.
The Court examines each argument, beginning with the tender requirement. California law mandates that a plaintiff seeking to void a foreclosure must tender the full secured debt amount, though exceptions exist, such as challenging the validity of the debt or if requiring tender would be inequitable. In this case, the Plaintiff's amended complaint does not explicitly seek to set aside the foreclosure, negating the need for tender. However, the Plaintiff indicates a potential intent to seek such relief in future amendments. The Plaintiff argues equity should excuse the tender requirement, claiming he defaulted only at the Defendant's invitation. The Defendant does not adequately respond to this equity argument but merely reiterates the general tender requirement. The Court tentatively leans towards allowing the Plaintiff's assertion of Defendant's inducement to suffice in excusing tender for now, pending any future amendments that might explicitly challenge the foreclosure.
The Court has decided not to dismiss the amended complaint solely on the basis that the Plaintiff did not allege an offer to tender. However, the Plaintiff is instructed that future amendments must explicitly request all relief sought and provide viable claims supporting that relief, particularly if it involves halting the foreclosure. This includes either a good-faith offer of tender or a justification for being excused from this requirement.
Regarding the denial of a HAMP modification, the Defendant argues that the amended complaint essentially challenges the denial of the Plaintiff's HAMP application, which lacks a private right of action under HAMP. However, the Court finds that the amended complaint does not directly seek a HAMP modification or contest the HAMP denial. Instead, it centers on the Defendant's alleged breach of promises not to impose negative consequences on the Plaintiff during the HAMP application process. The Court concludes that the Defendant's argument fails to provide grounds for dismissal.
As for Claim 1 under the Equal Credit Opportunity Act (ECOA), the act prohibits discrimination in credit transactions based on specific criteria. The Plaintiff claims a violation related to the failure of the creditor to notify him of the decision on his credit application within thirty days, as required by ECOA. For an ECOA claim, a plaintiff must demonstrate membership in a protected class, application for credit, qualification for credit, and denial despite that qualification. The Court indicates that the Plaintiff's complaint does not sufficiently meet these elements to establish a prima facie case under ECOA.
Plaintiff’s claim under the Equal Credit Opportunity Act (ECOA) is dismissed due to failure to allege membership in a protected class or that the HAMP modification application qualifies as a 'credit' application under ECOA. The Court permits Plaintiff to amend this claim, emphasizing that any amendment must assert a prima facie ECOA claim to avoid dismissal with prejudice.
Additionally, the claim regarding the implied covenant of good faith and fair dealing is also dismissed. The covenant aims to prevent one party from unfairly frustrating the other party’s rights under the contract. To establish a breach, Plaintiff must show: 1) a contract exists; 2) compliance with contract obligations; 3) all conditions for the defendant's performance are met; 4) unfair interference with the plaintiff's contractual benefits; and 5) resulting harm.
While Plaintiff connects facts to the elements of this cause of action, the allegations do not support a viable claim. Defendant’s actions, such as instructing Plaintiff to miss payments and promising not to impose penalties during the modification process, are deemed separate from the contractual obligations outlined in the deed of trust (DOT) and related note. As such, these claims do not constitute a breach of the implied covenant related to the DOT and note. The Court dismisses this claim but allows for an amendment, which must specifically cite breaches tied to provisions in the DOT or note.
Claim 3 seeks reformation of a contract provision in the Deed of Trust (DOT), specifically section 12, which states that forbearance by the lender does not waive its rights. The Plaintiff argues this conflicts with California Civil Code sections 1511 and 1512, which allow for a debtor's performance to be excused if the creditor’s actions induce non-performance. The Plaintiff contends that the Defendant’s instruction to withhold payment constitutes a waiver of claims to those payments and alleges the provision is intentionally drafted to mislead borrowers, creating a default situation while loan modifications are pending.
The claim for reformation is dismissed for failing to present a valid legal theory. Reformation is typically allowed in cases of fraud or mistake, and while the Plaintiff asserts unconscionability, this may align more closely with illegality. The claim lacks sufficient allegations regarding fraud, particularly about the circumstances of the DOT’s drafting or signing, as required by Federal Rule of Civil Procedure 9(b). The Defendant also argues the claim is time-barred due to the statute of limitations expiring since the DOT was signed in 2005. However, the court finds that the Plaintiff's allegations do not provide enough detail to determine when he discovered the cause of action or which limitations period applies. As a result, the court dismisses the reformation claim but allows the Plaintiff to pursue it in a future amended complaint if he asserts a valid separate claim.
Claim 4 of the legal document pertains to promissory estoppel, which requires a clear promise, reasonable reliance on that promise, foreseeability of that reliance, and injury resulting from that reliance. The case cited, Boon Rawd Trading Int’l Co. Ltd. v. Paleewong Trading Co. Inc., establishes these elements. The Plaintiff alleges that in March or April 2009, Defendant’s agent, Hollander, promised that if the Plaintiff stopped making loan payments for 90 days, he would receive favorable treatment in loan modification and would not face foreclosure. The Plaintiff claims to have relied on this promise by missing three payments, resulting in damages including a lower credit score, initiation of foreclosure proceedings, and accumulation of fees. The Court finds these allegations sufficient for a prima facie claim of promissory estoppel, rejecting the Defendant's argument regarding inadequate damages and the statute of frauds, as the alleged promise was independent from the original loan terms. The Court expresses some concern regarding the specificity of the allegations regarding Hollander’s promise but ultimately determines that the details provided are adequate to proceed to discovery.
Claim 5 involves wrongful foreclosure, wherein the Plaintiff asserts that Defendant’s foreclosure actions contravene California’s non-judicial foreclosure laws. However, this claim is dismissed due to insufficient pleading, as the Plaintiff does not specify the conduct violating the law or the relevant statutory sections. The Court permits the Plaintiff to amend this claim, emphasizing the need for specific allegations to support a valid claim, warning that failure to do so may lead to a dismissal with prejudice.
Claim 6 for 'False Light' invasion of privacy was dismissed with prejudice as time-barred under a one-year statute of limitations. The court noted that the Plaintiff's federal complaint was filed on June 22, 2012, but the false light claim was only added in an amended complaint on July 31, 2012. The claim accrued no later than June 2, 2011, when Plaintiff allegedly received a Notice of Trustee Sale, and potentially as early as January 2011 when he learned of credit damage. Therefore, the claim was dismissed based on being filed outside the applicable time frame.
Claims 7 and 8 for intentional and negligent misrepresentation were found to be insufficiently pled. The intentional misrepresentation claim was based on an estoppel theory, requiring a material representation by the Defendant, knowledge of its truth, ignorance by the Plaintiff, intention for the Plaintiff to act, and that the Plaintiff was induced to act. The negligent misrepresentation claim shared the same allegations as the intentional claim but differed in the required state of mind. Both claims failed to meet the heightened pleading standard under Federal Rule of Civil Procedure 9(b) for fraud, as the Plaintiff only provided vague details about the promises made by Defendant's agents, lacking the specificity necessary to support a fraud claim. The court suggested that these claims might also be barred by the economic loss rule, which prohibits tort damages for contract claims.
Plaintiff's promissory estoppel claim centers on Defendant's purported promises against foreclosure for late payments, while the intentional fraud claim complicates matters by alleging a fraudulent promise of a HAMP modification. The Court finds that Plaintiff has not clearly articulated the specific content, timing, or falsity of the alleged fraudulent promise, leading to the dismissal of both intentional and negligent misrepresentation claims as insufficiently pled. Plaintiff is granted leave to amend these claims, with the requirement to specify the promised details and relevant dates.
Regarding the Unfair Competition Law (UCL) claim, which prohibits unfair competition through unlawful, unfair, or fraudulent acts, Plaintiff appears to invoke the 'unfairness' prong but lacks clarity in his allegations. The Court highlights the evolving standards for UCL unfairness and notes that Plaintiff must tether his claim to a specific legal provision. Plaintiff argues that his claims of breach of the implied covenant of good faith and misrepresentation constitute unfair competition; however, since these claims are also deemed insufficiently pled, the UCL claim fails. The Court expresses concern over Plaintiff's conflation of the unfairness and unlawfulness prongs of the UCL and notes inconsistencies in identifying the legal basis for the UCL claim. As a result, the UCL claim is dismissed, with Plaintiff allowed to amend his allegations, emphasizing the need for specific facts to support a viable legal theory. Failure to do so may lead to a dismissal with prejudice.
Defendant's Rule 12(f) motion to strike portions of Plaintiff's amended complaint related to punitive damages and attorney fees is denied, as Rule 12(f) does not permit striking claims based on their legal preclusion. Instead, challenges to such claims should be made through appropriate motions per Rule 12(b)(6) or summary judgment. The Court partially grants and denies Defendant Bank of America N.A.’s motion to dismiss Plaintiff Ted F. Harvey’s amended complaint. Specifically, Claims 1 (ECOA) and 2 (Implied Covenant of Good Faith and Fair Dealing) are dismissed with leave to amend, while Claim 3 (Reformation of Contract) is dismissed, allowing for a separate claim on reformation. Claim 4 (Promissory Estoppel) persists, Claim 5 (Wrongful Foreclosure) is dismissed with leave to amend, and Claims 6 (False Light Invasion of Privacy) is dismissed with prejudice. Claims 7 (Intentional Misrepresentation), 8 (Negligent Misrepresentation), and 9 (UCL) are dismissed with leave to amend. The Court grants Defendant’s judicial notice request of public records. It confirms diversity jurisdiction under 28 U.S.C. § 1332 based on Plaintiff’s California residency and Defendant's North Carolina citizenship, noting that the amount in controversy exceeds the jurisdictional threshold. Plaintiff has 30 days to file a second amended complaint.
Plaintiff must ensure that any further pleadings conform to Civil Local Rule 3-5 by clearly articulating the grounds for federal jurisdiction. Defendant presents two arguments regarding the amended complaint: first, that it should be dismissed for being insufficiently pled. This argument is rejected as the complaint contains factual allegations, suggesting that issues should be raised on a claim-by-claim basis rather than as a blanket dismissal. Second, Defendant contends that the complaint, which challenges its right to foreclose, should be dismissed based on judicially noticeable documents indicating this right. This argument is circular and lacks merit. Additionally, Defendant incorrectly asserts that the discovery rule in California applies only to fraud claims; it actually applies to various claims with differing statutes of limitation. Finally, Plaintiff's promissory estoppel claim is limited to promises made by Hollander and does not involve other promises, such as those made by Garo.
