2017-00221565-CU-OR

Caprice Sheldon vs. Barrett Daffin Frappier Treder & Weiss

Nature of Proceeding: Motion for Judgment on the Pleadings

Filed By: Mohseni, Tara

Defendant Wells Fargo’s Motion for Judgment on the Pleadings as to the Complaint is ruled on as follows:

Wells Fargo’s Request for Judicial Notice is granted.

Plaintiffs’ allege claims arising from alleged violations of the HOBR.

The Court initially issued a Temporary Restraining Order (“TRO”) prohibiting the sale of the Property. Thereafter, after oral argument on the Order to Show Cause re Preliminary Injunction on June 26, 2018, the court denied the Preliminary Injunction and dissolved the TRO. (RJN, Exhs. 11,12.) Of course, “[t]he granting or denying of a preliminary injunction does not constitute an adjudication of the ultimate rights in controversy.” (Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286.)

A defendant may move for judgment on the pleadings if the complaint does not state facts sufficient to constitute a cause of action against that defendant. (See Code Civ. Proc. § 438(b)(1) & (c)(l)(B)(ii).) Except as provided by statute, the rules governing demurrers also govern motions for judgment on the pleadings. (Cloud v. Northrup Grumman Corp. (1998) 67 Cal.App.4th 995, 999.) Thus, for the purposes of this motion, the Court accepts the truth of all material facts

properly pleaded but not the truth of “contentions, deductions or conclusions of law.” ( Aubry v. Tri-City Hosp. Dist. (1992) 2 Cal.4th 962, 967.) In addressing the motion, the Court performs essentially the same task as ruoing on a general demurrer. Smiley v. Citibank (1995) 11 C.4th 138, 146.

1st cause of action Violation of Civil Code section 2923.55 (now 2923.5)

The motion for judgment on the pleadings is denied.

Plaintiffs allege that on February 14, 2017 a notice of default was recorded (NOD #3) , and attached to that notice was a declaration required by CC 2923.55 dated September 19, 2014, the same declaration which had been previously been attached to an earlier NOD (NOD #1). Plaintiffs allege they were never contacted before the filing of NOD #3, the NOD that is relevant to this action. Plaintiffs have pleaded a failure to comply with CC 2923.55 (now CC 2923.5) with respect to NOD #3.

Although CC 2923.55 is no longer operative, defendant does not contend that plaintiff cannot state a cause of action under the nearly identical descendent statute, CC 2923.5, if they could meet the requirements. Moreover as noted below under the 2nd cause of action, the HOBR statutes are retroactive to prior conduct. The Court finds that plaintiffs state a claim under section 2923.5, the nearly identical descendent statute to section 2923.55. (See former 2923.55, repealed by Stats.2013, c. 76 (A.B.383), § 15.) That section, like 2923.55, provides that prior to recording a NOD under California Civil Code section 2924, a mortgage servicer is required to contact the borrower to assess their financial situation and explore options for the borrower to avoid foreclosure. Any NOD recorded thereafter must include a declaration that the mortgage servicer has contacted the borrower within 30 days of the date of the NOD, or has tried with due diligence to contact the borrower. (Cal. Civ. Code, § 2923.5(e).)

Wells Fargo contends that the 2014 declaration attached to NOD #3 verifies that Wells Fargo exercised due diligence in attempting to contact Plaintiffs before recording NOD #3. (RJN Exhs. 6, 8.) Wells Fargo therefore concludes it has verified its compliance with its duties under the statute. Wells Fargo ignores the fact that the declaration was executed in 2014, more than three years before NOD #3 was recorded. Plaintiffs have

adequately alleged that Wells Fargo did not assess plaintiff’s financial situation in 2017 with respect to NOD #3. The statutes evinces a pronounced effort by lenders to inform borrowers of loan modification programs when borrowers default. The statute thus requires mortgagees, beneficiaries, or authorized agents to contact borrowers and to explore options that could avoid foreclosure. Specifically, the statute required the lender to contact the borrower in person or by telephone in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. That purpose is not furthered if, as asserted here, a declaration is provided to a long-abandoned NOD, and the bank much later seeks to foreclose, claiming the original declaration suffices. It does not.

Wells Fargo further contends that Plaintiffs do not allege any facts to show how Wells Fargo’s alleged failure to make contact before recording the NOD could be considered a “material” violation. A borrower may bring an action for injunctive relief to enjoin a material violation of Section 2923.5…” (Cal. Civ. Code,§ 2924.12(a) 1) [emphasis added].) However, the “non-materiality” of the violation involves factual issues not apparent on the face of the Complaint, as plaintiff alleges that compliance with the statute would have resulted in a loan modification.

To the extent Wells Fargo relies on evidence it submitted in opposition to the motion for preliminary injunction on the issue of its efforts to contact plaintiffs, the Court declines to consider such extrinsic evidence because the Court may not go outside the four corners of the Complaint in ruling on a demurrer. The Court does not take judicial notice of the truth of the statements in evidence submitted in the opposition to the OSC re Preliminary Injunction.

2nd cause of action Violation of Civil Code Section 2923.6 (now Civil Code section 2924.11) dual tracking

The motion for judgment on the pleadings is denied.

Wells Fargo contends that Plaintiffs’ second cause of action for violation of section 2923.6 must fail because that code section no longer exists. It is, of course, true that the January 1, 2018 sunset date has passed. However, the new dual tracking provisions are set out in section 2924.11. Thus, although there is no remedy under the repealed statute, plaintiffs state a cause of action under CC 2924.11. Defendant has not otherwise challenged the merits of this cause of action in the moving papers. The Court finds that a cause of action is properly alleged under Civil Code section 2924.11.

” ‘[I]n the absence of an express retroactivity provision, a statute will not be applied retroactively unless it is very clear from extrinsic sources that the Legislature or the voters must have intended a retroactive application.’ ” (Rope v. Auto-Chlor System of Washington, Inc. (2013) 220 Cal. App. 4th 635, 646

[internal citations omitted].) “[I]f the amendment changed the law and imposed personal liability for earlier actions, the question of retroactivity arises.” (Id.) However, a statute that merely clarifies existing law may be applied to transactions predating its enactment “without being considered retroactive.” (In re

Marriage of Fellows (2006) 39 Cal. 4th 179, 183 ; Riley v. Hilton Hotels Corp . (2002) 100 Cal. App. 4th 599, 603.) “The clarified law is merely a statement of what the law has always been.” (Id., Id.)

In this case, The Legislature has provided specific language in the legislative notes to

the current statutes that they are intended to apply to prior conduct. Stats 2018 ch 404 provides:

SEC. 25. The amendment, addition, or repeal of a section, or part of a section, by this act shall not have the effect to release, extinguish, or change, in whole or in part, any liability that shall have been incurred under that section, unless the amendment, addition, or repeal expressly so provides. The section, or part of a section, that is amended, added, or repealed shall be treated as still remaining in force for the purpose of sustaining any proper action, suit, proceeding, or prosecution, for the enforcement of a penalty, forfeiture, or liability, as well as for the purpose of sustaining any judgment, decree, or order. (emphasis added)

SEC. 26. It is the intent of the Legislature that any amendment, addition, or repeal of a section or part of a section enacted by Senate Bill 900 (Chapter 87 of the Statutes of 2012) and Assembly Bill 278 (Chapter 86 of the Statutes of 2012), commonly known as the California Homeowner Bill of Rights, that took effect as of January 1, 2018, shall not have the effect to release, extinguish, or change, in whole or in part, any liability that shall have been incurred under that section, or part of a section, prior to January 1, 2018, unless the amendment, addition, or repeal expressly so provides. The section, or part of a section, that was amended, added, or repealed shall be treated as still remaining in force for the purpose of sustaining any proper action, suit, or proceeding for the enforcement of such a liability, as well as for the purpose of sustaining any judgment, decree, or order. (emphasis added)

In other words, the previous version of the statute is treated as remaining in force for the purpose of sustaining any suit.

3rd cause of action Violation of Civil Code section 2923.7

The motion for judgment on the pleadings is denied.

Plaintiffs contend Wells Fargo failed to appoint a single point of contact (“SPOC”) to manage Plaintiffs’ requests for a foreclosure alternative. They allege they kept getting routed to other people, none of whom was familiar with their file. Plaintiffs allege that, despite their requests, they were provided with a “case manager” who failed to perform his/her duties as a single point of contact. (Complaint, ¶¶ 55-56.) Wells Fargo contends plaintiffs’ Complaint admits they were appointed a single point of contact, but not one who performed the required functions. The statute mandates that the SPOC have “responsibilities.”

When presented with an issue of statutory interpretation, “[the court] must ‘ascertain the intent of the Legislature so as to effectuate the purpose of the law.’ (Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1386.) In undertaking this determination, the Court is mindful of its limited role in the process of interpreting enactments from the political branches of our state government. In interpreting statutes, the Court must follow the Legislature’s intent, as exhibited by the plain meaning of the actual words of the law, ‘ “ ‘whatever may be thought of the wisdom, expediency, or policy of the act.’ ” ’ (People v. Weidert (1985) 39 Cal.3d 836, 843, quoting Woodmansee v. Lowery (1959) 167 Cal.App.2d 645, 652.) ‘[A]s this court has often recognized, the judicial role in a democratic society is fundamentally to interpret laws, not to write them. The latter power belongs primarily to the people and the political branches of government . . . .’ (Kopp v. Fair Pol. Practices Com. (1995) 11

Cal.4th 607, 675 (conc. opn. by Werdegar, J.).)” (California Teachers Assn. v. Governing Bd. of 27 Rialto Unified School Dist. (1997) 14 Cal.4th 627, 632-633.) The statute not only requires that a SPOC be established, but, important to the issue here, that the SPOC “shall be responsible for doing all of the following”:

“(1) Communicating the process by which a borrower may apply for an available foreclosure prevention alternative and the deadline for any required submissions to be considered for these options.

(2) Coordinating receipt of all documents associated with available foreclosure prevention alternatives and notifying the borrower of any missing documents necessary to complete the application.

(3) Having access to current information and personnel sufficient to timely, accurately, and adequately inform the borrower of the current status of the foreclosure prevention alternative.

(4) Ensuring that a borrower is considered for all foreclosure prevention alternatives offered by, or through, the mortgage servicer, if any.

(5) Having access to individuals with the ability and authority to stop foreclosure proceedings when necessary.”

The Court finds that plaintiffs’ allegations that the single point of contact did not perform the requirements of the statute is sufficient to allege they were not provided a single point of contact. The Court finds the pleading sufficient to survive at this stage of the action.

4th cause of action Violation of Civil Code section 2924.12

The motion for judgment on the pleadings is granted, without leave to amend.

Plaintiffs bring a cause of action under HBOR section 2924.12. (Compl. 58-62.) However, this section merely provides the remedies for violations of the substantive requirements of HOBR, and is not a separate cause of action. As the Court previously stated in the ruling denying the motion for preliminary injunction, section 2924.12 is merely an implementing or facilitating provision for relief as to the other sections of the Homeowners Bill of Rights and does not give rise to a statutory violation on its own. The Court rejects plaintiffs’ argument that this is a cause of action for declaratory relief.

5th cause of action Breach of Contract and 6th cause of action Breach of the

Covenant of Good Faith and Fair Dealing:

The motion for judgment on the pleadings is granted, with leave to amend.

The Complaint’s fifth and sixth causes of action allege Wells Fargo breached paragraph 22 of the DOT because it failed to notify Plaintiffs of the acceleration of their loan, moved forward with foreclosure despite failing to properly notice Plaintiffs, and “strung Plaintiffs along” by promising them the opportunity to

obtain a loan modification but failing to follow through with that promise. (Id. at ¶¶65, 68, 69-70).

The proper way to “plead a contract” is to either quote the relevant contractual language verbatim in the complaint, or attach a copy of the contract itself (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1489 (citation omitted); 4 Witkin, Cal. Procedure, Pleading §§ 479,480 pp. 572-573 (4th Ed. 1997).) “Where a party relies upon a contract in writing, and it affirmatively appears that all the terms of the contract are not set forth in haec verba, nor stated in their legal effect, but that a portion which may be material has been omitted, the complaint is

insufficient.” (Gilmore v. Lycoming Fire Ins. Co. (1880) 55 Cal. 123,124.) Here, Plaintiffs have attached the DOT at issue, but fail to indicate the specific language they claim to have been violated. The DOT makes no mention of Wells Fargo’s obligations related to modifications of the loan. (See Compl., Exh. A.) Paragraph 22, which Plaintiffs cited in support of the claim, deals only with the captions of the document and has nothing to do with acceleration of the loan. (Id.) In fact, Plaintiffs do not actually allege Wells Fargo ever accelerated the loan. The NOD gave Plaintiffs the opportunity to cure their default by paying the arrears, not the full accelerated balance. (Id. at ¶¶ 17, 23; RJN Exhs. 6, 8.)

Because Plaintiffs fail to plead a valid contract, their derivative Breach of the Implied Covenant of Good Faith and Fair Dealing claim also fails. The covenant of good faith and fair dealing does not impose duties beyond those provided in the contract at issue. Guz v Bechtel National Inc. (2000) 24 Cal.4th 317, 349-350.

7th cause of action Negligence

The motion for judgment on the pleadings is granted, with leave to amend.

Wells Fargo contends that the facts alleged in the Complaint fail to show that Wells Fargo owed plaintiffs a duty of care. The elements of negligence are (1) legal duty owed to plaintiff; (2) breach; (3) causation; and (4) injury to plaintiff. (Mendoza v. City of Los Angeles (1998) 66 Cal.App.4th 1333,1339.) The Court agrees.

Factors to be balanced when considering whether a financial institution owes a duty of care to a borrower arising out of a loan transaction are: (1) the extent to which the transaction was intended to affect the borrower; (2) the foreseeability of harm to him;

(3) the degree of certainty that the borrower suffered injury; (4) the closeness of the connection between the lender’s conduct and the injury suffered; (5) the moral blame attached to the lender’s conduct; and (6) the policy of

preventing future harm. (Biakanja v. Irving (1958) 49 Cal.2d 647).

Under California law, it is within this court’s purview to find that Wells Fargo owed Plaintiff’s a duty of due care by virtue of balancing the Biakanja factors, (See Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 948.) However, plaintiffs fail to allege facts sufficient to create a duty in negligence after balancing the required factors. Both the allegations of the Complaint, and the opposition, fail to allege specific facts that show that the damages plaintiffs suffered were directly connected to the lender’s conduct.

Although the court has found that plaintiffs, for pleading purposes, have alleged violations of the HOBR, including failure to make contact before filing of a NOD, and failure to assign a single point of contact, these alleged violations, for which remedies are specifically provided in Civil Code 2924.12, do not necessarily create a duty in negligence.

Plaintiff’s allege that they were not contacted before the filing of the NOD #3, yet they go onto allege that they themselves initiated contact with Wells Fargo. They contend that Wells Fargo should have provided them with a permanent loan modification but have not alleged facts to show that they would have received a permanent loan modification if HOBR had been complied with.

As recent cases have recognized, Nymark is but a general rule, as a “lender owes a duty to a borrower not to make material misrepresentations about the status of an application for a loan modification or about the date, time or status of a foreclosure sale. The law imposed a duty not to make negligent misrepresentations of fact…It is foreseeable that a borrower might be harmed by an inaccurate or untimely communication about a foreclosure sale or about the status of a loan modification application, and the connection between the misrepresentation and the injury suffered could be close.” (Lueras, supra, 221 Cal.Ap.4th at 68-69 [emphasis added].) In addition, a financial institution owes a duty of reasonable care in processing a loan modification at least where it was alleged that the defendants agreed to consider loan modifications. (Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941, 949-951; Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1183.)

In this case, plaintiffs allegations of violation of the HOBR are not sufficient to show that plaintiffs’ damages or the failure to obtain a loan modification occurred as a result of the violations. They have not alleged facts to show that Wells Fargo’s unlawful conduct, rather than plaintiff’s own admitted financial troubles, was the cause their default. (Jenkins v. JPMorgan Chase Bank N.A. (2013) 216 Cal.App.4th 497, 522-523 [nonjudicial foreclosure proceedings triggered by default are not economic injury caused by UCL violations].

8th cause of action Negligent Infliction of Emotional Distress

The motion for judgment on the pleadings is granted, with leave to amend.

California does not recognize a distinct cause of action for negligent infliction of emotional distress; such a claim is treated as “a form of the tort of negligence, to which the elements of duty, breach of duty, causation and damages apply.” (Huggins v. Longs Drug Stores Cal.. Inc. (1993) 6 Cal.4th 124, 129; Potter v. Firestone Tire & Rubber Co. (1993) 6 Cal.4th 965, 984.)

The court has found that the facts, as currently pleaded, are not sufficient to allege a duty in negligence. Even if a duty was alleged, to obtain emotional distress damages plaintiffs must allege a threat of physical injury, not simply damage to property or financial interests.” (Id.; Butler-Rupp v. Lourdeaux (2005) 134 Cal.App.4th 1220,1228.) Plaintiffs allege no physical injury, other than their conclusory claim that they suffered “extreme emotional distress.” (See Compl.) Plaintiffs thus cannot recover emotional distress damages even had they alleged the other elements of a negligence claim, and therefore they cannot state a claim for NIED.

9th cause of action Unfair Business Practices

The motion for judgment on the pleadings is granted, with leave to amend.

Wells Fargo contends that since this cause of action arises out of a statutorily-based prohibition on dual tracking formerly codified in section 2923.6 and now codified in section 2923.11. Wells Fargo contends no cause of action is stated for the underlying violation since the former version of 2923.6 has been repealed by legislation not containing an express saving clause. The Court rejects the argument that no cause of action arising from the alleged dual tracking exists based on the absence of an express savings clause.

The UCL prohibits unlawful, unfair, and fraudulent business practices. See Cal. Bus. & Prof Code § 17200. Wells Fargo contends that plaintiffs lack standing to pursue this claim because they have not alleged an actual injury. Wells Fargo contends Plaintiffs’ claims that they suffered damages such as late fees and charges due to wrongful foreclosure do not confer standing because they have not connected their damages arising from the foreclosure sale to the alleged violations of HOBR. Plaintiffs have failed to allege that they “lost money or property as a result o f the unfair competition they challenge. (Bus. & Prof Code, § 17204; Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216

Cal.App.4th 497, 521.

Since this is the first challenge to the pleadings that is being ruled upon, leave to amend is granted where such leave has been given. Plaintiffs may file and serve an Amended Complaint on or before February 11, 2019. Response to be filed and served within 30 days of service of the Amended Complaint, 35 days if served by mail.

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.