Case Name: Gwendolyn Taitt-Relf v. Fay Servicing, LLC
Case No.: 16CV297089

I. Background

This is a wrongful foreclosure action brought by Gwendolyn Taitt-Relf (“Plaintiff”) against Fay Servicing, LLC (“Defendant”) and Servis One, Inc. dba BSI Financial Services (“BSI”).

According to the allegations of the third amended complaint (“TAC”), Plaintiff purchased certain property in San Jose (“Subject Property”) in 2006, with financing she obtained from Bank of America, N.A. (“BANA”). She secured the loan by executing a Deed of Trust (“DOT”) and Promissory Note (“Note”) in favor of BANA.

In 2012, Plaintiff attempted to modify her loan and contacted BANA to obtain the proper loan modification application. She received a loan modification application from BANA’s office in Houston, Texas, completed it, and sent it back. Days later, Plaintiff received another loan modification application from a location in Charlotte, North Carolina. She immediately completed this application and sent it to the Charlotte address.

Thereafter, Plaintiff was contacted by a BANA representative, Raul Chinchilla (“Chinchilla”), who requested additional documents to complete the application she already submitted. She complied with his request. Approximately a month later, Chinchilla told her that BANA approved her application but he needed her bank statements to secure the modification. Plaintiff faxed the statements to him. She did not hear from him again despite Chinchilla’s designation as her point of contact (“POC”) and her attempts to contact him.

In February 2013, Plaintiff received another loan modification application from BANA’s office in Houston, Texas. She received seven additional applications from different BANA offices located around the country. She completed and submitted each application.

In December 2013, Plaintiff asked her new POC, Taylor, about the status of her applications, but Taylor claimed to have no knowledge of them. Then in February 2014, Plaintiff began receiving debt collection calls from Defendant. Because she had not received any notice that the servicing of her loan had transferred, she believed Defendant failed to send her the requisite servicing notice transfer. Plaintiff then contacted Taylor to ask about her mortgage loan. Taylor claimed to have no knowledge about Defendant in relation to her loan and stated that her loan modification application was still under review with BANA. Plaintiff never received a response on the applications she submitted with BANA.

In June 2015, Defendant’s representative Sugey Lozano (“Lozano”) advised Plaintiff to apply for Hardest Hit Fund modification, a program Defendant participates in. She immediately submitted the application materials. On June 8, 2015, Defendant notified her that certain application materials were missing and due by July 8, 2015. It also informed her that until a complete application was received, it would not place any foreclosure on hold and “[i]n the event that complete submission is received within seven (7) days of any scheduled foreclosure sale, [it has] the right to refuse the submission.” (TAC, ¶ 21.) Plaintiff made sure to submit all application materials as requested within the required timeframes. Subsequently, Lozano advised her again that certain application materials were missing. Plaintiff again submitted the materials well before the July 8 deadline.

In July 2015, Plaintiff received a call from a real estate broker who informed her that the Subject Property would sell at auction on July 31, 2016. Because her loan modification application was still under review, she asked Lozano about the possibility of foreclosure. Lozano did not respond. In July 2015, Plaintiff submitted additional loan modification application materials. Subsequently, Lozano confirmed that her loan modification application was moving along and under review.

In August 2015, while her complete loan modification application was under review, Defendant improperly caused a Notice of Trustee’s Sale for the Subject Property to be recorded and scheduled a foreclosure sale. When she asked Lozano about her property being sold at foreclosure, Lozano denied that a sale had been scheduled. Given Defendant’s correspondence, the improper filing of the Notice of Trustee’s Sale, and Lozano’s denial of the scheduled foreclosure sale, Plaintiff was left with only the option to file a Chapter 13 bankruptcy petition to avoid foreclosure. This lawsuit followed.

In June 2017, Plaintiff sent Defendant a loan modification package with supporting documentation. Plaintiff was informed that some information was missing, which she then supplied. Plaintiff never received a response on this application. Thereafter Plaintiff was informed that servicing of her loan had purportedly transferred to BSI. Plaintiff has not received any written confirmation of this change, and despite several calls to BSI has been unable to confirm the status of her loan, her loan modification, and the proper payment address. Plaintiff continued sending her payments to Defendant in the absence of written confirmation from BSI.

Plaintiff asserts the following causes of action against Defendant: (1) violation of 12 Code of Federal Regulations part 1024.41; (2) violation of 12 United States Code section 2605(c); (3) violation of Civil Code section 2937; (4) negligence for failing to provide accurate information on the status of the foreclosure of the subject property; and (5) negligence for failing to maintain certain mandatory policies and procedures. In a separate cause of action, Plaintiff also asserts negligence for failing to maintain certain mandatory policies and procedures against BSI, but this cause of action is not at issue here.

Presently before the Court is Defendant’s motion to strike. The specific portions of the pleading that Defendant moves to strike are: (1) punitive damages; (2) damage to Plaintiff’s credit; (3) attorney’s fees as to the Civil Code section 2937 and negligence causes of action; and (4) recovery for emotional distress. Plaintiff opposes the motion to strike.

II. Meet and Confer

Prior to filing a motion to strike, the moving party must meet and confer with the party who filed the challenged pleading to determine whether an agreement can be reached that would resolve the objections to the pleading. (Code Civ. Proc., § 435.5, subd. (a).) If an agreement cannot be reached and a motion to strike is filed, the demurring party must file a declaration stating the means by which he or she met and conferred with the party who filed the pleading. (Code Civ. Proc., § 435.5, subd. (a)(3).)

Here, Defendant did not file a meet and confer declaration with its motion to strike. As such, the Court cannot ascertain whether Defendant attempted to meet and confer or did not engage in any such efforts. In either case, Defendant failed to file the required declaration. Thus, Defendant did not comply with Code of Civil Procedure section 435.5. With that said, an insufficient meet and confer process is not a basis for denial of a motion to strike. (Code Civ. Proc., § 435.5, subd. (a)(4).) Accordingly, the Court will consider the merits of the motion despite this procedural defect. Defendant is admonished to comply with Code of Civil Procedure section 435.5 in the future.

III. Merits of the Motion to Strike

This motion is made pursuant to Code of Civil Procedure section 436, which permits the striking of “any irrelevant, false, or improper” matter from a pleading. Irrelevant matter includes a demand for relief not supported by the allegations. (Code Civ. Proc., § 431.10, subds. (b)(3), (c).)

A. Punitive Damages

“In order to state a prima facie claim for punitive damages, a complaint must set forth the elements as stated in the general punitive damage statute, Civil Code section 3294. [Citation.] These statutory elements include allegations that the defendant has been guilty of oppression, fraud or malice. [Citation.]” (Turman v. Turning Point of Cent. California, Inc. (2010) 191 Cal.App.4th 53, 63.) In order “[t]o support punitive damages, the complaint . . . must allege ultimate facts of the defendant’s oppression, fraud, or malice.” (Cyrus v. Havenson (1976) 65 Cal.App.3d 306, 316-317.)

The TAC does not distinguish between “malice, fraud and/or oppression” or state on which basis Plaintiff is asserting punitive damages are appropriate. (TAC, ¶¶ 75, 85.) Likewise, neither party’s memorandum clearly identifies which of these three legal grounds for punitive damages is at issue.

As a preliminary matter, it does not appear that fraud is one of the bases on which Plaintiff seeks punitive damages. Although Plaintiff makes a conclusory statement that defendants are guilty of fraud there are no corresponding factual allegations in the TAC that support fraud. Furthermore, neither party suggests in their papers fraud is a predicate to the punitive damage claims. Finally, punitive damages are sought by Plaintiff in connection with her negligence causes of action and a mere negligent misrepresentation does not support punitive damages based upon fraud. (PM Group, Inc. v. Stewart (2007) 154 Cal.App.4th 55, 69.) Thus, it appears that Plaintiff seeks punitive damages on the ground that Defendant’s conduct constitutes malice or oppression.

Under the punitive damages statute, Civil Code section 3294, “malice” is defined as conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.” (Civ. Code, § 3294, subd. (c)(1).) “Oppression” is defined as “despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person’s rights.” (Id., § 3294, subd. (c)(2).) “Despicable conduct,” in turn, has been described as conduct that is “so vile, base, contemptible, miserable, wretched or loathsome that it would be looked down upon and despised by ordinary decent people.” (Mock v. Michigan Millers Mutual Ins. Co. (1992) 4 Cal.App.4th 306, 331.)

Defendant initially argues that punitive damages are per se unavailable for negligence claims. Defendant’s argument is based upon the faulty premise that negligent conduct can never be a basis for punitive damages. While it is true that conduct which is merely negligent does not support punitive damages, Defendant’s argument overstates this principle. (See G.D. Searle & Co. v. Superior Ct. (1975) 49 Cal.App.3d 22, 31-32; Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1288. ) “Nonintentional torts may also form the basis for punitive damages when the conduct constitutes conscious disregard of the rights or safety of others.” (Peterson v. Superior Court (1982) 31 Cal.3d 147, 158 (Peterson); Courtesy Ambulance Service v. Superior Court (1992) 8 Cal.App.4th 1504, 1518 [“malice includes either ‘despicable’ conduct done with a conscious disregard of the rights or safety of others, or conduct which is actually intended to cause harm”] [italics in original].) Thus, Defendant’s argument lacks merit.

Next, Defendant argues that the allegations are not sufficient to support a request for punitive damages. Defendant asserts that Plaintiff’s allegations are conclusory and, therefore, should not survive a motion to strike. This assertion is based upon Smith v. Superior Court (1002) 10 Cal.App.4th 1033, where the court ruled that allegations of a right to punitive damages without factual allegations supporting oppression, fraud, or malice were insufficient to survive a motion to strike. (Smith, supra, 10 Cal.App.4th at p. 1039.)

It is well established that, punitive damage allegations cannot be pleaded generally. (Grieves v. Superior Court (1984) 157 Cal.App.3d 159, 166.) As is relevant here, the complaint must allege facts showing statutory oppression or malice. (Ibid.)

Here, Plaintiff seeks punitive damages because Defendant allegedly “fail[ed] to keep Plaintiff apprised of the status of the foreclosure of her property” (TAC, ¶ 71) and “fail[ed] to have in place a system which is reasonably designed to provide a borrower with accurate information […]” (TAC, ¶ 80). Plaintiff further alleges that Defendant acted “in conscious disregard of the rights and safety of Plaintiffs [sic] in that the actions were calculated to injure Plaintiff.” (TAC, ¶¶ 75, 85.) Aside from these allegations, the TAC does not include facts showing how Defendant’s failures show conscious disregard of Plaintiff’s safety or rights, or how they were calculated to injure Plaintiff. These allegations are insufficient to support a request for punitive damages.

Accordingly, the motion to strike punitive damages is GRANTED, with 10 days’ leave to amend.

B. Damage to Plaintiff’s Credit

Defendant argues that allegations about it causing damage to Plaintiff’s credit should be stricken from the TAC because credit reporting is “entirely irrelevant to this matter” and is “also preempted by [the Fair Credit Reporting Act].” (P&A ISO MTS, p. 6:19-21.)

Defendant’s arguments are not well-taken. First, Defendant does not support its assertion that the damage to Plaintiff’s credit is irrelevant with reasoned argument or citation to law. (See Badie v. Bank of America (1998) 67 Cal.App.4th 779, 784-785; see Schaeffer Land Trust v. San Jose City Council (1989) 215 Cal.App.3d 612, 619, fn. 2 [“[A] point which is merely suggested by a party’s counsel, with no supporting argument or authority, is deemed to be without foundation and requires no discussion.”].)

Turning to Defendant’s preemption argument, the Fair Credit Reporting Act (“FCRA”) “was adopted by Congress to ensure accuracy and fairness in credit reporting and to protect the rights of individual consumers.” (Sanai v. Saltz (2009) 170 Cal.App.4th 746, 763.) The FCRA imposes two general requirements on furnishers of consumer credit reporting agencies: (1) “the duty to provide accurate information (15 U.S.C. § 1681s-2(a)) and [(2)] the duty to investigate the accuracy of reported information upon receiving notice of a dispute (15 U.S.C. § 1681s-2(b)).” (Id. at pp. 763-764.) Defendant cites title 15 United States Code sections 1681s-2 and 1681t(b)(1)(F) in support of its preemption argument. Section 1681s-2 states in relevant part: “A person shall not furnish any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate.” (15 U.S.C. § 1681s-2(a)(1)(A).) Section 1681t(b)(1)(F) states that “[n]o requirement or prohibition may be imposed under the laws of any State with respect to any subject matter regulated under section 1681s-2 of this title, relating to the responsibilities of persons who furnish information to consumer reporting agencies, except” for two exceptions. (15 U.S.C. § 1681t.) Based upon the statutes cited by Defendant, courts have ruled that claims by consumers against furnishers of credit information for providing false information to credit reporting agencies are preempted. (See Lafferty v. Wells Fargo Bank (2013) 213 Cal.App.4th 545, 568 [listing cases].)

However, the instant allegations are readily distinguishable from cases applying FCRA preemption. Here, there is no allegation that Defendant reported any information to a consumer credit reporting agency. Also, the harm to Plaintiff’s credit was allegedly caused by Plaintiff filing for bankruptcy, not by the dissemination of inaccurate information. In sum, FCRA preemption is inapplicable here.

Accordingly, the motion to strike is DENIED as to the references to Plaintiff’s credit in paragraphs 73 and 83 of the TAC.

C. Attorney’s Fees

Defendant contends that Plaintiff is not entitled to attorney’s fees because the TAC does not expressly reference a contract or statute that provides for them.

Defendant’s argument implies there is a requirement to plead the basis for attorney’s fees. Code of Civil Procedure section 1021 generally limits the recovery of attorney’s fees, but it does not create any requirement as to how they must be pleaded. Additionally, there does not appear to be legal authority requiring a statutory or contractual basis for attorney’s fees to be affirmatively pleaded. (See Chinn v. KMR Property Management (2008) 166 Cal.App.4th 175, 194 [disapproved on other grounds in deSaulles v. Community Hosp. of Monterey Peninsula (2016) 62 Cal.4th 1140]; Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2017), ¶ 6:275, p. 6-91.) Accordingly, Defendant’s argument with respect to attorney’s fees is flawed.

Accordingly, the motion to strike is DENIED as to the references to attorney’s fees in the TAC.

D. Emotional Distress Damages

Finally, Defendant argues that Plaintiff cannot recover emotional distress damages for negligence that caused only economic injury.

Defendant contends, correctly, that recovery for emotional distress caused by injury to property is limited to cases where there is a preexisting relationship between the parties or an intentional tort. (Ragland v. U.S. Bank Nat. Assn. (2012) 209 Cal.App.4th 182, 203–204; see Lubner v. City of Los Angeles (1996) 45 Cal.App.4th 525, 532; Cooper v. Superior Court (1984) 153 Cal.App.3d 1008, 1012.)

In Erlich v. Menezes (1999) 21 Cal.4th 543, 548-549 (Erlich), the court considered whether to award damages for emotional distress to a couple whose dream home had been ruined by the negligent work of a contractor. The trial court had awarded damages for emotional distress, and the Court of Appeal had affirmed the decision. (Id. at pp. 549-550.) The California Supreme Court reversed the Court of Appeal because the emotional suffering derived from an inherently economic concern. (Id. at p. 558.) The court stated:

[U]nless the defendant has assumed a duty to plaintiff in which the emotional condition of the plaintiff is an object, recovery is available only if the emotional distress arises out of the defendant’s breach of some other legal duty and the emotional distress is proximately caused by [breach of the independent duty]. Even then, with rare exceptions, a breach of the duty must threaten physical injury, not simply damage to property or financial interests.

(Id. at pp. 555-556.)

The court reasoned there was no physical injury and, thus, emotional distress damages were not available. (Erlich, supra, 21 Cal 4th at p. 557.) Although the contractor’s poor work caused emotional distress which manifested itself in the form of heart trouble, that was not considered sufficient physical injury. (Ibid.) The court reasoned that the physical injury “flowed from the emotional distress and not directly from the negligent construction,” thus, the negligent construction had not caused the physical harm. (Ibid.)

Similarly here, Plaintiff does not allege facts showing that Defendant owed a duty to her with respect to her emotional condition. Moreover, the alleged breach of Defendant’s duty did not threaten Plaintiff with physical harm. Thus, emotional distress damages are unavailable.

Plaintiff asserts that the cases cited by Defendant are distinguishable because they do not address demurrers or motions to strike. This distinction does not appear to be a material one. Furthermore she does not support her argument with any law stating that legal authorities discussing remedies available after trial are irrelevant to deciding motions to strike improper remedies from pleadings. Instead, the cases cited by Plaintiff stand for the much narrow proposition that when ruling on a motion to strike a court accepts all well pleaded facts as true. (See Wolfe v. State Farm Fire & Casualty Insurance Co., (1996) 46 Cal.App.4th 554; see also Serrano v. Priest, (1971) 5 Cal. 3d. 584.) This general principle does not support Plaintiff’s specific argument.

Accordingly, the motion to strike is GRANTED, with 10 days’ leave to amend, as to the requests for emotional distress damages in the TAC and the prayer.