Case Name: Loh v. JP Morgan Chase Bank, N.A., et al.
Case No.: 1-13-CV-256623

Defendants JP Morgan Chase Bank, N.A. (“Chase”) and California Reconveyance Company (collectively, “Defendants”) demur to the first amended complaint (“FAC”) filed by plaintiff Fu-Mei Loh (“Plaintiff”).

This is an action arising out of a foreclosure. In 1998, Plaintiff and her husband obtained a loan in the amount of $ 832,500 (the “Loan”) from Home Savings of America FSB, secured by a deed of trust on a property located at 20651 Leonard Road in Saratoga (the “Property”). (FAC at ¶¶ 7, 8; Defendants’ Request for Judicial Notice (“RJN”), Exhibit A.) At some point in time unknown to Plaintiff, Chase became the servicer on the Loan. (FAC at ¶ 9.)

In February 2011, Plaintiff, who was divorced, submitted a loan modification application to Chase. (Id. at ¶ 10.) After approximately 22 months of reviewing Plaintiff’s application, Chase offered her a loan modification in December 2012. (Id. at ¶ 12, Exhibit 1.) Pursuant to the terms of the modification proposal, if Plaintiff complied with the terms of the plan, Chase would modify the Loan but would also add interest in the amount of $71,322.88 and escrow advances in the amount of $25,078.62 to generate a new principal balance of $780,515.17. (Id. at ¶ 13.) Plaintiff contends that had Chase timely reviewed her application and granted her request, her principal balance would not have increased by $96,401.50. (Id.) Alternatively, she alleges that if Chase had reviewed the application in a timely manner and denied her request, the arrearage on her account would have been in an amount that was more affordable. (Id.)

Plaintiff attempted to execute the agreement in March 2013 with a notary, as required, at her local Chase Bank but was unable to do so after the notary would not permit her to execute the agreement without the presence of her ex-husband, who was also listed as a borrower. (Id. at ¶ 18.) Due to her ex-husband’s unavailability, a Chase representative instructed Plaintiff to make an additional payment under the loan workout plan (she had already made three) in order to provide her with additional time to get her ex-husband to execute the agreement. (Id. at ¶ 19.) Consequently, Plaintiff tendered payment in the amount of $2,475.54 for April 2013. (Id. at ¶ 20.) Chase however, returned the payment.

Plaintiff was unable to obtain her ex-husband’s signature as he had relocated to Taiwan. (FAC at ¶ 21.) In April 2013, a Chase representative advised Plaintiff that her ex-husband did not need to execute the loan modification agreement because Chase had received a copy of her divorce decree. (Id. at ¶ 22.) In the same conversation, the representative also communicated to Plaintiff that Chase was refusing to honor the modification agreement because of her failure to submit the executed modification agreement, a failure that was due to her husband’s failure to execute the documents. (Id. at ¶ 23.) In a letter dated June 5, 2013, Chase stated that Plaintiff’s ex-husband was not required to sign the loan modification agreement. (Id. at ¶ 24, Exhibit 2.) Chase subsequently initiated foreclosure proceedings on the Property.

On March 28, 2014, Plaintiff filed the FAC asserting the following causes of action: (1) Negligence; (2) Promissory Estoppel; (3) Fraudulent Concealment; and (4) Violation of Business & Professions Code § 17200.

On April 30, 2014, Defendants filed the instant demurrer to each of the four causes of action asserted in the FAC on the ground of uncertainty and failure to state facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subds. (e) and (f).)

Defendants’ request for judicial notice is GRANTED. (See Evid. Code, § 452, subd. (h); see Alfaro v. Committee Housing Imp. System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1382; Evans v. Cal. Trailer Court, Inc. (1994) 28 Cal.App.4th 540, 549; see also Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-265 [stating that “a court may take judicial notice of the fact of a document’s recordation, the date the document was recorded and executed, the parties to the transaction reflected in the recorded document, and the document’s legally operative language … [and,f]rom this, the court may deduce and rely upon the legal effect of the recorded document”].)

Defendants’ demurrer to the first (negligence), second (promissory estoppel), third (fraudulent concealment) and fourth (violation of Bus. & Prof. § 17200) causes of action on the ground of uncertainty is OVERRULED. The allegations of the complaint are not so unintelligible that the defendants cannot reasonably respond to them. (See Khoury v. Maly’s of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.)

Defendants’ demurrer to the first cause of action (negligence) on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND. This cause of action is predicated on Plaintiff’s contention that Chase owed her certain duties, including (1) to implement the modification proposal despite her rejection of it, (2) to accept loan payments when she was already in arrears, (3) to review her loan application within a certain, unspecified time, and (4) alternatively deny her for a loan modification so that she could reinstate the Loan. (FAC at ¶¶ 29-42.) Each of the forgoing contentions is unavailing.

There is no actionable duty between a lender and borrower as loan transactions are arms-length. A lender “owes no duty of care to the [borrowers] in approving their loan. Liability to a borrower for negligence arises only when the lender ‘actively participates’ in the financed enterprise ‘beyond the domain of the usual money lender.’” (Wagner v. Benson (1980) 101 Cal.App.3d 27, 35, internal citations omitted.) “[A]s a general rule, a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.” (Nymark v. Heart Fed. Sav. & Loan Ass’n. (1991) 231 Cal.App.3d 1089, 1095.) Moreover, “loan servicers do not owe a duty to the borrowers of the loans they service.” (Shepherd v. American Home Mortg. Services, Inc. (E.D. Cal. 2009) 2009 WL 4505925, at *2; see also Huerta v. Ocwen Loan Servicing, Inc. (N.D. Cal. 2010) 2010 WL 728223, at *4.)

Numerous cases have characterized a loan modification as a traditional money lending activity warranting application of the “no-duty” rule articulated in Nymark, supra. (See e.g., Morgan v. U.S. Bank N.A. (N.D. Cal. 2013) 2013 WL 684932, *3 [“even where a lender offers a loan modification, that is ‘nothing more than a renegotiation of loan terms. This renegotiation is the same activity that occurred when the loan was first originated’ … [and] is therefore ‘a traditional money lending activity’”]; see also Argueta v. JP Morgan Chase (E.D. Cal. 2011) 2011 WL 2619060, *5 [stating that the plaintiff’s allegations about the loan modification process, including that Chase acted unreasonably by failing to timely review her application for such modification, were “insufficient to plausibly suggest that defendants owed plaintiff a duty of care”]; Alvarado v. Aurora Loan Services, LLC (C.D. Cal. 2012) 2012 WL 4475330, *6 [“[t]he conventional-moneylender test shall be sufficient to determine that there is no duty of care owed in servicing Plaintiff’s mortgage loan and loan modification”].)

Consequently, Chase owed no actionable duty of care to Plaintiff arising from her dissatisfaction with the loan modification process. Thus, no claim for negligence has been stated.

Defendants’ demurrer to the second cause of action (promissory estoppel) on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND. Under California law, a plaintiff alleging a promissory estoppel claim must plead: (1) the existence of a promise “clear and unambiguous in its terms”; (2) “reliance by the party to whom the promise is made”; (3) that any reliance was both “reasonable and foreseeable”; and (4) that the party asserting the estoppel was injured by his reliance. (US Ecology, Inc. v. State (2005) 129 Cal.App.4th 887, 901, internal citations omitted.) Plaintiff fails to plead a clear and unambiguous promise on the part of Chase. While she insists that she relied on the terms of the offered loan modification agreement, this was not an unambiguous promise to modify the loan because she did not sign or accept the proposal. The exhibits attached to the FAC demonstrate that Plaintiff was required to act – i.e., “return the signed Agreement no later than December 21, 2012”- but failed to do so. (FAC, Exhibit A, Section 2; Exhibit B.) Notably, Plaintiff’s interactions with a Chase representative at the bank took place after that time. (Id. at ¶ 45.) Further, Plaintiff fails to plead damages that were not caused by her own actions, i.e., her failure to remain current with her loan payments.

Finally, Plaintiff’s claim is barred by the statute of frauds. A promise to modify a loan secured by a deed of trust is subject to the statute of frauds. (See Secrests v. Security Nat. Mortg. Loan Trust 2002-2 (2008) 167 Cal.App.4th 544, 547, 553.) Promissory estoppel cannot render an oral promise otherwise within the statute of frauds enforceable. (Melegrito v. CitiMortgage Inc. (N.D. Cal. 2011) 2011 WL 2197534, *13.)

Defendants’ demurrer to the third cause of action (fraudulent concealment) on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND. The elements for a claim for fraud are “(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.” (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974.) Plaintiff has not pleaded with any specificity or clarity what exactly was concealed from her by Chase and by whom. It is well-settled that fraud claims must be pleaded with particularity. (See e.g., Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 993.)

Defendants’ demurrer to the fourth cause of action (violation of Bus. & Prof. Code § 17200) on the ground of failure to state facts sufficient to constitute a cause of action is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND. In order to have standing to pursue a cause of action under the UCL, a plaintiff must have suffered an “injury in fact and [have] lost money or property as a result of the unfair competition.” (Bus. & Prof. Code, § 17204.) Here, Plaintiff fails to plead facts which demonstrate that she suffered an actual, realized injury. There are no allegations that the Property has been sold at a foreclosure sale. Moreover, to the extent that Plaintiff claims that she has suffered harm from the initiation of foreclosure proceedings, this harm is the result of her own default under the terms of the Loan and rejection of the modification agreement. (See Jenkins v. JP Morgan Chase Bank, N.A. (2013) 215 Cal.App.4th 497, 523 [holding plaintiff could not satisfy causation prong of standing requirement for UCL claim because her default triggered the nonjudicial foreclosure which threatened to extinguish her interest in the subject property].)