Case Name: Tuan Vu, et al. v. Bank of America, N.A., et al.
Case No.: 1-14-CV-267998

On or about August 22, 2006, plaintiffs Tuan Vu and Nga Dang (collectively “Plaintiffs”) “entered into a consumer loan transaction with [Countrywide Home Loan Servicing, LP (“Countrywide”)]” to refinance the mortgage on their home located at 18573 Emanuel Court, Saratoga, California 95070 (the “Property”). (First Amended Complaint (“FAC”), ¶ 16.) Countrywide also took a security interest in the Property pursuant to a Deed of Trust (the “DOT”). The DOT lists Plaintiffs as the borrower, Countrywide as the lender, defendant Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary, and Recon Trust as the trustee. (See FAC, ¶¶ 16-17, Ex.1.) On or about March 25, 2011, a Corporation Assignment of Deed of Trust was recorded with the Santa Clara County Recorder, in which MERS assigned its beneficial interest in the DOT to “BAC Home Loans Servicing, LP fka Countrywide Home Loans Servicing, LP” (“BAC”). (FAC, ¶ 18, Ex. 2.) Plaintiff alleges that BAC is a wholly owned subsidiary of defendant Bank of America, N.A. (“BOA”). (See FAC, ¶ 18.) In August 2011, Plaintiffs were experiencing financial difficulty and BOA told them that they would be eligible for a loan modification if they stopped making their payments. (See FAC, ¶¶ 20, 22, 38.) Plaintiffs stopped making payments on their loan and submitted a written loan application to BOA. (See FAC, ¶¶ 44-46.) BOA refused to accept the application and told Plaintiffs that they did not qualify for a modification without first reviewing Plaintiffs’ qualifications. (See FAC, ¶ 40-41) Thereafter, in June and December of 2013, BOA, as successor by merger to BAC, assigned its interest in the DOT to defendant Deutsche Bank National Trust Company (“Deutsche Bank”), as trustee for defendant Harborview Mortgage Loan Trust Mortgage Loan Pass-Through Certificates 2006-9 (“Harborview”). (See FAC, ¶¶ 10, 19, 24 Ex. 3.)

On December 2, 2014, Plaintiffs filed the operative first amended complaint (“FAC”) against BOA, MERS, Deutsche Bank, and Harborview, alleging causes of action for: (1) promissory fraud; (2) negligence; and (3) unlawful business practices in violation of Business and Professions Code section 17200, et seq.

On January 6, 2015, BOA filed a demurrer and Deutsche Bank and MERS filed a joint demurrer to Plaintiffs’ FAC. Plaintiffs filed a single opposition in response to both demurrers on January 23, 2015.

“In reviewing the sufficiency of a complaint against a general demurer, we are guided by long settled rules. ‘We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. We also consider matters which may be judicially noticed.’” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “A demurrer tests only the legal sufficiency of the pleading. It admits the truth of all material factual allegations in the complaint; the question of plaintiff’s ability to prove these allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213–214.)

I. Demurrer by BOA

BOA demurs to the first, second, and third causes of action of the complaint on the ground of failure to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

BOA’s request for judicial notice is GRANTED IN PART and DENIED IN PART. The request is GRANTED as to the Adjustable Rate Note, the Notice of Default and Election to Sell Under Deed of Trust that was recorded with the Santa Clara County Recorder on March 10, 2011, the Notice of Trustee’s Sale recorded with the Santa Clara County Recorder on June 14, 2011, and the Assignment of Deed of Trust recorded with the Santa Clara County Recorder on June 13, 2013. (See Branch v. Tunnell (9th Cir. 1994) 14 F.3d 449, 454 [stating that the incorporation by reference doctrine permits the court to consider documents central to the allegations in the complaint and whose authenticity no party questions, but which are not attached to the complaint] [overruled on other grounds in Galbraith v. County of Santa Clara (9th Cir. 2002) 307 F.3d 1119]; see also Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1285 n.3; see also Pac. Employers Ins. Co. v. State (1970) 3 Cal.3d 573, 575 n.1; see also Poseidon Develop., Inc. v. Woodland Lane Estates, LLC (“Poseidon”) (2007) 152 Cal.App.4th 1106, 1117 [stating that publicly recorded documents may be judicially noticed as to their existence and legal effect]; see also Evans v. California Trailer Court, Inc. (“Evans”) (1994) 28 Cal.App.4th 540, 549 [“the court may take judicial notice of recorded deeds”]; see also Fontenot v. Wells Fargo Bank, N.A. (“ Fontenot”) (2011) 198 Cal.App.4th 256, 264-265.) The request is DENIED as to the Corporate Assignment of Deed of Trust recorded with the Santa Clara County Recorder on March 10, 2011, because a copy of the same was not provided to the Court. (See Cal. Rules of Court, rule 3.1306(c) [“A party requesting judicial notice of material under Evidence Code sections 452 or 453 must provide the court and each party with a copy of the material”].)

Plaintiffs’ request for judicial notice is GRANTED. (See Evid. Code, § 452, subd. (h); see also StorMedia Inc. v. Super. Ct. (1999) 20 Cal.4th 449, 465, fn. 9 [judicial notice of SEC filings]; see also Walker v. Shield Acquisition Corp., 145 F. Supp.2d 1366, 1373 (N.D. Ga 2001); see also Poseidon , supra, 152 Cal.App.4th at p. 1117; see also Evans, supra, 28 Cal.App.4th at p. 549; see also Fontenot, supra, 198 Cal.App.4th at pp. 264-265.)

BOA’s demurrer to the first cause of action for promissory fraud and the third cause of action for unlawful business practices in violation of Business and Professions Code section 17200, et seq. is SUSTAINED, without leave to amend. Plaintiffs appear to concede that BOA’s arguments with respect to the first and third causes of action have merit as they do not address those claims in their opposition papers and they state that they do not oppose the demurrer as to those claims. (See Opp’n., p. 3, fn. 1.) Moreover, Plaintiffs do not request leave to amend those claims or otherwise show in what manner they can amend the claims to allege facts sufficient to state a cause of action. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [stating that “Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading”] quoting Cooper v. Leslie Salt Co. (1969) 70 Cal.2d 627, 636; see also Hendy v. Losse (1991) 54 Cal.3d 723, 742 [stating that “the burden is on the plaintiff… to demonstrate the manner in which the complaint might be amended”].)

BOA’s demurrer to the second cause of action for negligence is SUSTAINED, with 10 days’ leave to amend. First, BOA persuasively argues that the second cause of action is time-barred because: the FAC states that the allegedly negligent conduct took place in August 2011; claims for professional negligence are governed by a two-year statute of limitations; and Plaintiffs did not file their complaint until July 15, 2014. (See FAC, ¶¶ 38 [“[i]n August 2011, a representative from [BOA] represented to Plaintiff that he would qualify for modification if they defaulted on payments and stopped making their monthly mortgage payments”], 40-41 [“[BOA] refused to accept a written loan modification application from Plaintiff in August 2011 without explanation”], 70-72; see also Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1154 [stating that a claim for professional negligence has a two-year statute of limitations].)

Second, BOA persuasively argues that it did not owe Plaintiffs a duty of care to accept, review, or consider Plaintiff’s loan modification application. BOA’s negligent conduct, as alleged in the FAC, is within the scope of its conventional role as a money lender and a financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed that scope. (See Nymark Heart Fed. Sav. & Loan Assoc. (1991) 231 Cal.App.3d 1089, 1096; see also Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 67-68 [a lender does not owe a borrower any duties “to offer, consider, or approve loan modifications [or] to explore foreclosure alternatives”]; see also FAC, ¶¶ 70-72 [alleging that BOA represented that Plaintiffs would be eligible for a loan modification if they stopped making payments and, thereafter, refused to consider Plaintiffs loan modification application without reviewing their qualifications].)

Plaintiffs argue in opposition that BOA owed them a duty to process and/or service their application for a loan modification with care because BOA induced them to default on their loan in order to qualify for a modification and implied that Plaintiffs would actually be considered for a modification after default, citing Segura v. Wells Fargo Bank, N.A. (“Segura”) (C.D. Cal. Sept. 26, 2014) 2014 U.S. Dist. LEXIS 143038 and Alvarez v. BAC Home Loans Servicing, L.P. (“Alvarez”) (2014) 228 Cal.App.4th 941, amongst other cases. The cases cited by Plaintiffs are inapplicable as a duty to process and/or service a loan modification application with care is only imposed on defendants once they agree to consider the applications. (See e.g., Alvarez, supra, 228 Cal.App.4th at pp. 944, 948-950 [holding that the defendants owed the plaintiffs a duty to exercise reasonable care in the review of their loan modification applications once the defendants had agreed to consider them]; see also Segura, supra, (C.D. Cal. Sept. 26, 2014) 2014 U.S. Dist. LEXIS 143038 * 31-32 [stating that “having offered Plaintiffs an opportunity to apply for a modification, [the defendant] owed them a duty of reasonable care in considering their application.”].) Here, BOA did not agree to consider and/or process Plaintiffs’ loan modification application, but rejected it and did not review Plaintiffs’ qualifications. (FAC, ¶¶ 38, 40-41, 70-72.)

II. Demurrer by MERS and Deutsche Bank

MERS and Deutsche Bank demur to the first, second, and third causes of action of the complaint on the ground of failure to allege facts sufficient to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

Plaintiffs’ request for judicial notice is GRANTED. (See Evid. Code, § 452, subd. (h); see also StorMedia Inc. v. Super. Ct., surpa, 20 Cal.4th at p. 465, fn. 9 [judicial notice of SEC filings]; see also Walker v. Shield Acquisition Corp., 145 F. Supp.2d 1366, 1373 (N.D. Ga 2001); see also Poseidon , supra, 152 Cal.App.4th at p. 1117; see also Evans, supra, 28 Cal.App.4th at p. 549; see also Fontenot, supra, 198 Cal.App.4th at pp. 264-265.)

MERS and Deutsche Bank’s demurrer to the first cause of action for promissory fraud and the third cause of action for unlawful business practices in violation of Business and Professions Code section 17200, et seq. is SUSTAINED, without leave to amend. As indicated above, Plaintiffs appear to concede that MERS and Deutsche Bank’s arguments with respect to the first and third causes of action have merit as they do not address those claims in their opposition papers and they state that they do not oppose the demurrer as to those claims. (See Opp’n., p. 3, fn. 1.) Moreover, Plaintiffs do not request leave to amend those claims or otherwise show in what manner they can amend the claims to allege facts sufficient to state a cause of action. (See Goodman v. Kennedy, supra, 18 Cal.3d at p. 349 [stating that “Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading”] quoting Cooper v. Leslie Salt Co., supra, 70 Cal.2d at p. 636; see also Hendy v. Losse, supra, 54 Cal.3d at p. 742 [stating that “the burden is on the plaintiff… to demonstrate the manner in which the complaint might be amended”].)

MERS and Deutsche Bank’s demurrer to the second cause of action for negligence is SUSTAINED, with 10 days’ leave to amend. The allegations of the second cause of action pertain solely to BOA and the claim does not allege any facts pertaining to MERS or Deutsche Bank, or otherwise demonstrate that they engaged in negligent conduct. Moreover, it is wholly unclear what duty, if any, MERS and Deutsche Bank owe to Plaintiffs as there are no allegations that they were involved in the servicing or processing of the loan. The only allegations in the FAC that pertain to MERS and Deutsche Bank are that they do not hold a beneficiary interest in the DOT because the trust was closed, pursuant to the terms of the trust, when the DOT was assigned to Harborview. (See FAC, ¶¶ 10, 19, 24 Ex. 3.) However, most California state and federal cases follow the majority view that borrowers do not have standing to challenge loan assignments or alleged violations of trust pooling and servicing agreements. (See Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 514-515; see also Dahnken v. Wells Fargo Bank, N.A. (N.D. Cal. 2013) 2013 WL 5979356 at *2 [this court adopts the “majority position” of courts within this district, which is that plaintiffs lack standing to challenge noncompliance with a PSA in securitization unless they are parties to the PSA or third party beneficiaries of the PSA]; see also Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, 1155.)

In conclusion, the Demurrers are SUSTAINED WITHOUT LEAVE TO AMEND as to the first and third causes of action, and SUSTAINED WITH 10 DAYS LEAVE TO AMEND as to the second cause of action.