Burton v. JPMorgan Chase Bank, N.A. ( 2021 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 MELVIN BURTON; CATHERINE BURTON, No. 2:21-cv-00708 WBS CKD 13 Plaintiffs, 14 v. ORDER RE: DEFENDANT’S MOTION TO DISMISS 15 J.P. MORGAN CHASE BANK, N.A.; and DOES 1 through 10, 16 inclusive, 17 Defendant. 18 19 ----oo0oo---- 20 Plaintiffs Melvin Burton and Catherine Burton brought 21 this action against the owner and servicer of their secured home 22 loan, defendant J.P. Morgan Chase Bank, N.A. (“Chase”), for 23 violations of California’s Homeowner Bill of Rights (“HBOR”), 24 Cal. Civ. Code §§ 2923.7, 2923.9, 2924.10, California negligence 25 law, and California’s Unfair Competition Law (“UCL”).1 (See 26 1 Plaintiff’s complaint also contains an allegation that 27 Chase violated the Truth in Lending Act (“TILA”), 15 U.S.C. § 1641(g), by failing to advise plaintiffs in writing within 30 28 days that their Deed of Trust had been transferred or assigned to 1 generally Def.’s Notice of Removal, Ex. A (“Compl.”) (Docket No. 2 1-1).) 3 Chase now moves to dismiss plaintiffs’ claims in their 4 entirety. (Mot. to Dismiss (Docket No. 6).) 5 I. Factual Background 6 Plaintiffs obtained the mortgage loan at issue in July 7 2007 in the amount of $464,000.2 (Compl. ¶ 9.) The loan was 8 memorialized in a Promissory Note and secured by a Deed of Trust 9 against the property at issue (“Property”). (Compl., Ex. A 10 (“Deed of Trust”).) The nominee beneficiary under the Deed of 11 Trust was Mortgage Electronic Registration Systems, Inc. 12 (“MERS”). (Deed of Trust at 2.) 13 On December 2, 2010, MERS assigned its interest in the 14 loan to Chase via a recorded Assignment. (Compl., Ex. B.) At 15 the same time, Chase issued a Notice of Default based on 16 plaintiffs’ loan default in February 2010. (Def.’s Req. for 17 Judicial Notice (“RJN”), Ex. A (Docket No. 6).)3 On October 21, 18 a third party. (Compl. ¶ 18.) Plaintiffs have since voluntarily 19 dismissed their allegations concerning the TILA, however. (Docket No. 9.) 20 2 Plaintiffs originally obtained the mortgage loan from 21 Paul Financial, LLC. (Compl. ¶ 9.) 22 3 The court hereby takes judicial notice of the December 23 9, 2010 Notice of Default, Notice of Trustee’s Sale, and Notice of Rescission presented by Chase in its Request for Judicial 24 Notice (Def.’s RJN, Exs. A-C), as they are matters of public record as documents filed with the Sacramento County Recorder, 25 and not subject to reasonable dispute. See Harris, 682 F.3d at 1132; Perez v. Am. Home Mortg. Servicing, Inc., No. 12-cv-009323- 26 WHA, 2012 WL 1413300, at *2 (N.D. Cal. Apr. 23, 2012) (taking 27 judicial notice of deed of trust, notice of default, assignment of deed of trust, and substitution of trustee, all recorded with 28 Alameda County Recorder’s Office). 1 2011, Chase issued a Notice of Trustee’s Sale, scheduling a 2 foreclosure sale of the Property. (Def.’S RJN, Ex. B.) 3 Plaintiffs’ complaint alleges that the Notice of 4 Default “was never rescinded and is still active.” (Compl. ¶ 5 11.) However, records filed with the Sacramento County Recorder 6 clearly indicate that Chase rescinded the Notice of Default when 7 it entered into a loan modification agreement with plaintiffs in 8 April 2012.4 (Def.’s RJN, Ex. C.) 9 In 2014, plaintiffs filed for Chapter 13 bankruptcy in 10 the Northern District of California. (Def.’s RJN, Ex. D.) 11 Plaintiffs did not list any potential claim against Chase in the 12 bankruptcy Schedules. (See id.) Plaintiffs were discharged from 13 bankruptcy in February 2020. (Def.’s RJN, Ex. E.) 14 On October 5, 2020, plaintiffs, through their agent 15 Non-Profit Alliance of Consumer Advocates (“Alliance”), submitted 16 a new Loan Modification Application (“Application”) to Chase and 17 requested that Chase appoint a single point of contact (“SPOC”). 18 (Compl. ¶ 12, Ex. C (“Application”).) Plaintiffs’ allegations 19 are somewhat confusing, but from what the court can discern, 20 Alliance appears to have called Chase at least four times to 21 discuss plaintiffs’ Application over the next four months. (See 22 Compl. ¶¶ 13-18.) On October 15, 2020, Alliance called Chase, 23 but Chase informed Alliance that it had not received 24 4 In addition to being subject to defendant’ Request for 25 Judicial Notice, the 2012 loan modification agreement is properly considered by the court because it is part of the loan contract 26 alleged the complaint, and is thus incorporated by reference into 27 the complaint. See United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). 28 1 documentation or proof indicating that Alliance was authorized to 2 act on plaintiffs’ behalf regarding their Application.5 (Compl. 3 ¶ 13.) 4 Next, on October 26, 2020, plaintiffs appear to allege 5 that, after plaintiffs and Alliance contacted Chase via a 3-way 6 call, Chase informed them that an SPOC had been assigned to their 7 case and that they would have to wait to discuss their 8 Application until the SPOC was available. (Compl. ¶ 14.) On 9 November 3, 2020, an agent for Chase, James, informed Alliance 10 that Chase had not received plaintiffs’ Application and told 11 Alliance to refax the Application to another fax number. (Compl. 12 ¶ 15.) Then, on December 2nd, Alliance spoke with another agent 13 of Chase, Amanda Faeder, who advised that plaintiffs had been 14 given “an extension” to December 31, 2020. (Id.) 15 Plaintiffs do not allege that Chase has assessed any 16 late fees or taken any actions to initiate foreclosure 17 proceedings since they submitted their Application. (See 18 generally Compl.) To the contrary, plaintiffs allege that, on 19 October 12, 2020, Chase informed them that they had been placed 20 on COVID forbearance. (Compl. ¶ 15.) Plaintiffs’ allegations do 21 not specify whether the extension mentioned by Ms. Faeder on 22 December 2nd was in reference to COVID forbearance, whether their 23 24 5 Plaintiffs’ allegations regarding this call are, to put it mildly, unclear. The complaint states: “PLAINTIFFS allege 25 that on October 15, 2020, NON-PROFIT [Alliance] called DEFENDANT [Chase] but they apparently did not have our authorization so 26 where is the packet?” (Compl. ¶ 13.) The court assumes that 27 this allegation indicates that Chase told Alliance that it had not received any proof or documentation that Alliance was 28 authorized to act on plaintiffs’ behalf. 1 status on COVID forbearance has expired, or whether they are 2 still on COVID forbearance. Their allegations also do not 3 indicate that Chase has taken any action to grant or deny their 4 Application or to initiate foreclosure proceedings. (See id.) 5 II. Discussion 6 Federal Rule of Civil Procedure 12(b)(6) allows for 7 dismissal when the plaintiff’s complaint fails to state a claim 8 upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). 9 The inquiry before the court is whether, accepting the 10 allegations in the complaint as true and drawing all reasonable 11 inferences in the plaintiff’s favor, the complaint has stated “a 12 claim to relief that is plausible on its face.” Bell Atl. Corp. 13 v. Twombly, 550 U.S. 544, 570 (2007). “The plausibility standard 14 is not akin to a ‘probability requirement,’ but it asks for more 15 than a sheer possibility that a defendant has acted unlawfully.” 16 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Threadbare 17 recitals of the elements of a cause of action, supported by mere 18 conclusory statements, do not suffice.” Id. Although legal 19 conclusions “can provide the framework of a complaint, they must 20 be supported by factual allegations.” Id. at 679. 21 A. California HBOR 22 Plaintiffs claim that Chase has violated three 23 provisions of the California HBOR. First, plaintiffs claim that 24 Chase violated the SPOC requirement, which requires that, “[u]pon 25 request from a borrower who requests a foreclosure prevention 26 alternative, the mortgage servicer shall promptly establish a 27 single point of contact and provide to the borrower one or more 28 direct means of communication with the single point of contact.” 1 Cal. Civ. Code § 2923.7. Second, plaintiffs claim that Chase 2 failed to offer them foreclosure prevention alternatives within 3 five business days of recording a notice of default. Id. at 4 § 2924.9. Third, plaintiffs claim that Chase failed to provide 5 written acknowledgment of its receipt of documentation within 6 five business days of receipt. Id. at § 2924.10. 7 1. Sections 2923.7 & 2924.10 8 Plaintiffs’ claims for violations of §§ 2923.7 and 9 2924.10 fail because, even assuming Chase’s conduct violated the 10 HBOR, plaintiffs fail to allege material violations of the 11 statute. Violations of §§ 2923.7 and 2924.10 are only actionable 12 when those violations are material--i.e., where “the alleged 13 violation affected a plaintiff's loan obligations or the 14 modification process.” Shupe v. Nationstar Mortgage LLC, 231 F. 15 Supp. 3d 597, 603 (E.D. Cal. 2017) (England, J.) (quoting Cornejo 16 v. Ocwen Loan Servicing, LLC, 151 F. Supp. 3d 1102, 1113 (E.D. 17 Cal. 2015)); see also Jacobik v. Wells Fargo Bank, N.A., No. 17- 18 cv-05121-LB, 2017 WL 5665666, *8 (N.D. Cal. Nov. 26, 2017). 19 Plaintiffs allege that they submitted their completed 20 Application on October 5, 2020, and do not allege having received 21 confirmation of receipt from Chase. (Compl. ¶ 12.) Plaintiffs 22 then appear to allege that they were unable to speak with a Chase 23 representative on October 26, 2020, because an SPOC had been 24 appointed to their case but was unavailable at that time.6 25 6 It bears repeating that the allegations in plaintiffs’ complaint are extremely unclear. While plaintiffs assert 26 generally that Chase failed to appoint an SPOC, and their 27 complaint contains passing mention of multiple agents for Chase being involved in discussions with plaintiffs and Alliance (i.e. 28 “James” and “Amanda Faeder,” see Compl. ¶¶ 15-16), they also 1 (Compl. ¶ 14.) Finally, plaintiffs allege that they were told to 2 re-fax their Application to a different fax number on November 3, 3 2020. (Compl. ¶ 15.) 4 Even assuming Chase’s failure to assign an SPOC (or 5 failure to provide plaintiffs with a way to contact their SPOC) 6 and failure to provide written confirmation of its receipt of 7 plaintiffs’ Application delayed consideration of plaintiffs’ 8 application until November 3, 2020, plaintiffs do not provide any 9 explanation of how a 29-day delay ultimately has impacted their 10 loan obligation or impaired the modification process. Plaintiffs 11 acknowledge that Chase granted them COVID forbearance during this 12 time period, on October 12, 2021, so plaintiffs were not 13 obligated to make any payments on their loan during this time. 14 (Compl. ¶ 15.) Plaintiffs do not allege that Chase has denied 15 their Application, or even indicated to them that any portion of 16 their Application is missing and preventing Chase from evaluating 17 it. (See Compl. ¶¶ 12-18.) 18 There is also no indication that any foreclosure 19 proceedings are pending, other than a stray allegation regarding 20 the 2010 Notice of Default that is contradicted by public 21 records. (See Def.’s Req. for Judicial Notice, Ex. C.) In sum, 22 plaintiffs simply do not allege that any material harm has 23 resulted from Chase’s alleged failures to appoint a SPOC or to 24 acknowledge receipt of plaintiffs’ Application within five days. 25 appear to allege that Chase informed them that an SPOC had been assigned to their file. (Compl. ¶ 14.) Though it is possible 26 that plaintiffs’ own allegations show that Chase did in fact 27 comply with the SPOC requirement, the court need not reach that question, as plaintiffs fail to allege a material harm that has 28 resulted from any purported failure to assign an SPOC. 1 See Shupe, 231 F. Supp. 3d at 603. The court will therefore 2 dismiss plaintiffs’ claims for violations of §§ 2923.7 and 3 2924.10. 4 2. Section 2924.9 5 Plaintiffs’ claim that Chase failed to provide them 6 with foreclosure alternatives fails for two different reasons. 7 First, § 2924.9 did not exist in 2010, when the Notice of Default 8 was recorded (and thus when Chase would have been required to 9 provide plaintiffs with notice of foreclosure alternatives). The 10 effective date of the HBOR, including § 2924.9, was January 1, 11 2013. Valbuena v. Ocwen Loan Servicing, 237 Cal. App. 4th 1267, 12 1272 (2d Dist. 2015). Because the statute is “not retroactive,” 13 it does not encompass conduct which occurred prior to its 14 effective date, including the recordation of the Notice of 15 Default in this case. See Naranjo v. Aurora Lan Servs., LLC, 16 No. 14-cv-0065 JAH (JMA), 2014 WL 4805174, *3 (S.D. Cal. Sep. 26, 17 2014); Rockridge Trust v. Wells Fargo, N.A., 985 F. Supp. 2d 18 1110, 1152 (N.D. Cal. 2013). 19 Second, even if § 2924.9 were effective at the time of 20 the alleged misconduct, HOBR claims are subject to the three-year 21 limitations period set forth in California Code of Civil 22 Procedure § 338(a). See Dang v. Residential Credit Solutions, 23 No. C–14–02587–RMW, 2014 WL 5513753, *6 (N.D. Cal. Oct. 31, 24 2014). Because plaintiffs allege that Chase recorded the Notice 25 of Default in December 2010, any section 2924.9 claim expired in 26 December 2013, more than seven years prior to initiation of this 27 suit. See id. 28 The court will therefore dismiss plaintiffs’ second 1 claim for violation of Civil Code § 2924.9. 2 B. Negligence 3 Plaintiffs next claim that Chase acted negligently in 4 handling their Application. The conduct which forms the basis of 5 this claim is duplicative of that underlying plaintiffs’ HBOR 6 claims, as plaintiffs allege that each action taken by Chase 7 which violated the HBOR also constituted a breach of the duty of 8 care which they claim Chase owed them as a lender. (See Compl. 9 ¶¶ 36-55.) 10 To state a claim for negligence, plaintiffs must allege 11 (1) that Chase owed them a duty of care, (2) which it breached, 12 and that the breach (3) proximately caused them (4) injury. 13 Lueras v. BAC Home Loans Servicing, L.P., 221 Cal. App. 4th 49, 14 62 (4th Dist. 2013). Chase disputes that it owed any duty to 15 plaintiffs, arguing that it did not exceed the scope of its 16 conventional role as a money lender. 17 Under California law, it is unclear whether lenders owe 18 borrowers a duty of care when considering loan modification 19 applications. As Chase points out, the general rule is that 20 financial institutions “owe no duty of care to a borrower when 21 the institution’s involvement in the loan transaction does not 22 exceed the scope of its conventional role as a mere lender of 23 money.” Nymark v. Heart Fed. Savs. & Loan Ass’n, 231 Cal. App. 24 3d 1089, 1095-96 (3d Dist. 1991). However, that rule is not 25 absolute--California courts apply six factors, known as the 26 “Biakanja factors,” to determine whether a duty is owed: 27 “[1] the extent to which the transaction was intended to affect the plaintiff, [2] the 28 foreseeability of harm to him, [3] the 1 degree of certainty that the plaintiff suffered injury, [4] the closeness of the 2 connection between the defendant's conduct and the injury suffered, [5] the moral blame 3 attached to the defendant's conduct, and [6] the policy of preventing future harm.” 4 5 Id. (citing Biakanja v. Irving, 49 Cal. 2d 647 (Cal. 1958)). 6 In Lueras, the California Court of Appeal, Fourth 7 District, applied these factors to find that the lender—defendant 8 “did not have a common law duty of care to offer, consider, or 9 approve a loan modification” and dismissed the complaint. 10 Lueras, 221 Cal. App. 4th at 68. However, in Alvarez v. BAC Home 11 Loans Servicing, 228 Cal. App. 4th 941, 948 (1st Dist. 2014), the 12 California Court of Appeals sitting in the First District Court 13 of Appel applied the Biakanja factors to find a duty where 14 “defendants allegedly agreed to consider modification of the 15 plaintiffs’ loans.” 16 The parties acknowledge this split in authority; each 17 argues that the opinion reaching their desired outcome was better 18 reasoned. (See Mot. to Dismiss at 10; Pl.’s Opp’n at 11.) Most 19 federal courts sitting in California have elected to follow 20 Lueras. See Shupe, 231 F. Supp. at 605 (citing cases). The 21 Ninth Circuit also appears to find the Lueras line of cases more 22 persuasive. See Anderson v. Deutsche Bank Nat'l Trust Co. Ams., 23 649 Fed. Appx. 550, 552 (9th Cir. 2016) (mem.) (citing Lueras, 24 221 Cal.App.4th at 68) (“Although the California Supreme Court 25 has not addressed the question of whether a loan servicer owes a 26 common law duty to approve a loan modification application within 27 a particular time frame, we conclude that application of the 28 Biakanja factors does not support imposition of such a duty 1 where, as here, the borrowers' negligence claims are based on 2 allegations of delays in the processing of their loan 3 modification applications.” (footnote omitted)); Badame v. J.P. 4 Morgan Chase Bank, N.A., 641 Fed. Appx. 707, 709 (9th Cir. 2016) 5 (mem.) (“Plaintiffs failed to show that they met the first 6 element of a negligence claim, because Chase did not have ‘a 7 common law duty of care to offer, consider, or approve a loan 8 modification.’ ” (quoting Lueras, 221 Cal. App. 4th at 68)); 9 Deschaine v. IndyMac Mortg. Servs., 617 Fed. Appx. 690, 693 (9th 10 Cir. 2015) (mem.) (“IndyMac did not have ‘a common law duty of 11 care to offer, consider, or approve a loan modification, or to 12 explore and to offer [Deschaine] foreclosure alternatives.’ ” 13 (alteration in original) (quoting Lueras, 221 Cal.App.4th at 14 68)). 15 This court will similarly follow the Lueras line of 16 cases. Loan modifications are essentially arm’s length 17 negotiations that do not impose common-law duties upon lenders 18 because they “fall[] squarely within the scope of a lending 19 institution’s conventional role as a money lender.” Lueras, 221 20 Cal. App. 4th at 67. “A lender’s obligations to offer, consider, 21 or approve loan modifications and to explore foreclosure 22 alternatives are created solely by the loan documents, statutes, 23 regulations, and relevant directives and announcements from the 24 United States Department of the Treasury, Fannie Mae, and other 25 governmental or quasi-governmental agencies.” Id. Accordingly, 26 Chase did not owe plaintiffs a duty of care, and the court will 27 dismiss plaintiffs’ fourth claim for negligence. 28 C. California UCL 1 Plaintiffs’ final claim is that Chase’s conduct 2 violated the California UCL. See Cal. Bus. & Prof. Code § 17200. 3 The UCL prohibits unfair competition, which it defines as “any 4 unlawful, unfair, or fraudulent” business act or practice.” Id. 5 To have standing to bring a UCL claim, a plaintiff must have 6 “suffered injury in fact and . . . lost injury or property as a 7 result of the unfair competition.” Id. at § 17204. “The phrase 8 ‘as a result of’ . . . means ‘caused by’ and requires a causal 9 connection” between the alleged act of unfair competition and the 10 loss of money or property. Hall v. Time, 158 Cal. App. 4th 847, 11 855 (4th Dist. 2008). 12 Plaintiffs first allege that each underlying violation 13 of the HBOR also constitutes an “unlawful business act or 14 practice” which gives rise to liability under the UCL. (See 15 Compl. ¶¶ 56-68.) However, for reasons similar to those 16 discussed above, plaintiffs lack standing to bring a UCL claim 17 for violations of the HBOR because they do not allege that they 18 have suffered any injury in fact as a result of the alleged HBOR 19 violations. See Hall, 158 Cal. App. 4th at 855. 20 Plaintiffs further allege that Chase violated the UCL 21 by unduly delaying review of their Application, causing them to 22 incur “late & interest fees,”7 as well as litigation expenses 23 7 In their Opposition, plaintiffs argue that Chase has 24 continued to impose “default, interest and late fees to plaintiffs’ account even though this is explicitly against [Civil 25 Code] § 2924.11(f).” Section 2924.11(f) prohibits mortgage services from collecting late fees “for periods during which a 26 complete first lien loan modification application is under 27 consideration . . . .” Because plaintiffs’ complaint does not contain a single mention of § 2924.11(f), the court need not 28 evaluate whether plaintiffs have adequately stated a claim for 1 associated with bringing this suit. (Id. at ¶¶ 53, 66.) These 2 allegations similarly fail to confer plaintiffs with UCL 3 standing. First, it is well-settled that plaintiffs cannot use 4 their litigation expenses to manufacture a loss of money or 5 property for the purposes of UCL standing. See, e.g., Paulhus v. 6 Fay Servicing, LLC, No. 2:14-836 WBS AC, 2014 WL 3845051, *3 n.3 7 (E.D. Cal. Aug. 6, 2014) (“The cost of filing a claim under the 8 UCL also cannot constitute economic injury under the UCL.”). 9 Second, plaintiffs fail to establish a causal 10 connection between Chase’s alleged delay in considering their 11 Application and any late fees or interest that they have incurred 12 on their loan. The requirement that plaintiffs pay interest and 13 late fees after missing payments arises out of the terms of the 14 Promissory Note associated with their Deed of Trust. (Compl., 15 Ex. A § 1.) Plaintiffs do not allege that Chase charged them 16 more in interest or in late fees than what they were otherwise 17 required to pay under the terms of the Note, or that Chase has 18 caused them to miss payments and incur late fees. (See generally 19 Compl.) Additionally, plaintiffs’ own complaint alleges that 20 Chase granted them COVID forbearance (and thus absolved them of 21 the requirement that they make payments pursuant to the terms of 22 the loan) within a week of plaintiffs’ submission of their loan 23 modification application. (Compl. ¶¶ 12, 15.) Plaintiffs 24 therefore have not established the requisite causal connection 25 violation of § 2924.11(f). See Schneider v. Cal. Dep’t of 26 Corrs., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998) (“In determining 27 the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond the complaint to a plaintiff's moving papers, such as a 28 memorandum in opposition to a defendant's motion to dismiss.”). eee IIE IE RII I EINE IE I OIE IEE IE USING IIE ESO I 1 between any delay on the part of Chase and the incurrence of late 2 | fees and interest sufficient to establish UCL standing. See 3 Hall, 158 Cal. App. 4th at 855; Shupe, 231 F. Supp. 3d at 606. 4 The court will therefore dismiss plaintiffs’ fifth claim for 5 |} violation of the UCL. 6 Because plaintiffs’ complaint fails to put forth 7 sufficient facts to show that any of their alleged claims for 8 relief are plausible, the court will grant defendant’s motion to 9 | dismiss. See Iqbal, 556 U.S. at 678. At oral argument, 10 plaintiffs’ counsel represented that, if given leave to amend 11 their complaint, plaintiffs would be able to sufficiently allege 12 that the Chase’s violations of the HBOR prevented them from 13 submitting a complete Application. While it is not at all clear 14 from what was presented in plaintiffs’ complaint that they could 15 present sufficient facts to state a claim, the court will grant 16 | plaintiffs leave to amend their complaint to attempt to do so. 17 IT IS THEREFORE ORDERED that defendant’s motion to 18 dismiss (Docket No. 6) be, and the same hereby is, GRANTED. 19 Plaintiffs have twenty days from the date this Order is signed to 20 file an amended complaint, if they can do so consistent with this 21 Order. 22 | Dated: June 15, 2021 Atte A hd. WILLIAM B. SHUBB 23 UNITED STATES DISTRICT JUDGE 24 25 26 27 28 14