Lawrence v. Cenlar F.S.B. ( 2024 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 JAMES LAWRENCE, MARILYN Case No. 1:22-cv-01627-JLT-CDB MELLIES, 12 ORDER GRANTING IN PART AND Plaintiffs, DENYING IN PART DEFENDANT 13 CENLAR’S MOTION TO DISMISS AND v. GRANTING IN PART AND DENYING IN 14 PART DEFENDANT CITIBANK’S MOTION CENLAR F.S.B., CITIBANK, N.A., and TO DISMISS 15 DOES 1 through 10, (Docs. 10, 13.) 16 Defendants. 17 18 I. INTRODUCTION 19 This case concerns the foreclosure of the residence owned by James Lawrence and 20 Marilyn Mellies’ in Ridgecrest, California. Before the Court are motions to dismiss brought by 21 Citibank, N.A. (“Citibank”) and Cenlar FSB (“Cenlar”) (collectively “Defendants”). (Docs. 10, 22 13.) For the reasons set forth below, the Court grants in part and denies in part Citibank’s motion 23 to dismiss (Doc. 10), and grants in part and denies in part Cenlar’s motion to dismiss (Doc. 13).1 24 /// 25 26 1 The Court’s standing order provides that “[b]efore filing a motion in a case in which the parties are represented by 27 counsel, counsel shall engage in a pre-filing meet and confer to discuss thoroughly the substance of the contemplated motion and any potential resolution . . . In the notice of motion, counsel for the moving party shall certify that meet 28 and confer efforts have been exhausted and include a summary of meet and confer efforts.” All future motions must 1 II. BACKGROUND 2 On November 7, 2022, Plaintiffs filed this action against Defendants in the Superior Court 3 of the State of California, Kern County, Case No. BCV-22-102977. (Doc. 1-1 at 2.) Defendants 4 removed this action to this Court on December 20, 2022, based on federal question jurisdiction. 5 (Doc. 1-1 at 3–4.) 6 In August 2007, Plaintiffs obtained a mortgage loan on the real property located at 1039 7 W. Beston Ave., Ridgecrest, CA 93555 for $100,000 by deed of trust from Citibank. (Doc. 1-4, ¶ 8 10.) On May 5, 2022, Defendants recorded a notice of default and election to sell under a deed of 9 trust. (Doc. 1-4, ¶ 11.) The notice of default included a declaration from Cenlar dated March 16, 10 2022, and signed on March 21, 2022, which detailed Defendant Cenlar’s assertion that it 11 unsuccessfully attempted to contact Plaintiffs by mail and telephone. (Doc. 1-4 at 25–26.) A 12 notice of trustee’s sale was recorded on August 3, 2022. (Doc. 1-4, ¶ 12.) Plaintiffs contend the 13 property was unlawfully sold on September 7, 2022. (Doc. 1-4, ¶ 12.) 14 III. JUDICIAL NOTICE 15 Defendants request this Court take judicial notice of three documents: (1) a deed of trust 16 recorded on August 7, 2007, in the Kern County Recorder’s Office; (2) a substitution of trustee 17 recorded on May 5, 2022, in the Kern County Recorder’s Office; and (3) a trustee’s deed upon 18 sale recorded on October 28, 2022, in the Kern County Recorder’s Office. (Docs. 11, 14.) The 19 deed of trust and the trustee’s deed upon sale are also attached and incorporated in Plaintiffs’ 20 complaint. (Doc. 1-4 at 15–20; 1-3 at 2–4.) 21 “[C]ourts do not take judicial notice of documents, they take judicial notice of facts. The 22 existence of a document could be such a fact, but only if the other requirements of Rule 201 are 23 met.” Cruz v. Specialized Loan Servicing, LLC, No. SACV 22-01610-CJC-JDEX, 2022 WL 24 18228277, at *2 (C.D. Cal. Oct. 14, 2022) (internal citation and quotations omitted). Generally, 25 judicial notice may be taken of recorded instruments because they are public records whose 26 accuracy cannot reasonably be questioned. Fed. R. Evid. 201; see Perez v. Am. Home Mortg. 27 Servicing, Inc., No. 12-cv-009323-WHA, 2012 WL 1413300, at *2 (N.D. Cal. Apr. 23, 2012) 28 (taking judicial notice of a deed of trust, notice of default, assignment of deed of trust, and 1 substitution of trustee recorded with the Alameda County Recorder’s Office). However, a court 2 may not take judicial notice of a fact within a public record that is “subject to reasonable dispute.” 3 Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001). 4 Under Rule 201, the Court may take judicial notice that the substitution of trustee were 5 recorded with the Kern County Recorder’s Office on the dates indicated by the receipt stamp. 6 However, the Court’s judicial notice “extends only to the existence of these documents and not to 7 their substance, which may contain disputed or irrelevant facts.” Givens v. Newsom, 629 F. Supp. 8 3d 1020, 1024 (E.D. Cal. 2022). Accordingly, the Court grants judicial notice limited to the point 9 that the three documents exist and were publicly filed in the Kern County Recorder’s Office on 10 the respective dates reflected on each document. Because Plaintiffs attached the deed of trust and 11 the trustee’s deed upon sale as exhibits to the complaint, they have incorporated by reference 12 certain facts contained in the documents, rendering Defendants’ requests for judicial notice 13 unnecessary. See Lee, 250 F.3d at 688 (“[A] court may consider material which is properly 14 submitted as part of the complaint on a motion to dismiss without converting the motion to 15 dismiss into a motion for summary judgment.”) 16 IV. LEGAL STANDARD 17 Under Federal Rule of Civil Procedure 12(b)(6), a party may file a motion to dismiss on 18 the grounds that a complaint “fail[s] to state a claim upon which relief can be granted.” Fed. R. 19 Civ. P. 12(b)(6). A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of the 20 complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In deciding a motion to dismiss, 21 “all allegations of material fact are taken as true and construed in the light most favorable to the 22 non-moving party.” In re Facebook, Inc. Internet Tracking Litig., 956 F.3d 589, 601 (9th Cir. 23 2020). In assessing the sufficiency of a complaint, all well-pleaded factual allegations must be 24 accepted as true. Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). 25 A claim is facially plausible “when the plaintiff pleads factual content that allows the 26 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” 27 Iqbal, 556 U.S. at 678. A complaint that offers mere “labels and conclusions” or “a formulaic 28 recitation of the elements of a cause of action will not do.” Id.; see also Moss v. U.S. Secret Serv., 1 572 F.3d 962, 969 (9th Cir. 2009). “Dismissal is proper only where there is no cognizable legal 2 theory or an absence of sufficient facts alleged to support a cognizable legal theory.” Navarro, 3 250 F.3d at 732. 4 If the court dismisses the complaint, it “should grant leave to amend even if no request to 5 amend the pleading was made, unless it determines that the pleading could not possibly be cured 6 by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). In making 7 this determination, the court should consider factors such as “the presence or absence of undue 8 delay, bad faith, dilatory motive, repeated failure to cure deficiencies by previous amendments, 9 undue prejudice to the opposing party and futility of the proposed amendment.” Moore v. 10 Kayport Package Express, 885 F.2d 531, 538 (9th Cir. 1989). 11 V. DISCUSSION 12 In their complaint, Plaintiffs allege eight causes of action: violations of the California 13 Homeowner Bill of Rights under California Civil Code §§ 2923.5, 2924(a)(1), and 2924.9; 14 negligence; wrongful foreclosure; interpleader; violation of California’s Unfair Competition Law 15 under California Business and Professions Code § 17200; and cancellation of instruments. 16 A. Count One: Violation of California Civil Code § 2923.5 17 Plaintiffs allege that Defendants violated California Civil Code § 2923.5(a)(2), which 18 requires a “mortgagee, beneficiary or authorized agent” to “contact the borrower in person or by 19 telephone in order to assess the borrower’s financial situation and explore options for the 20 borrower to avoid foreclosure” prior to recording a notice of default. Defendants argue that 21 Plaintiffs’ first cause of action should be dismissed for two reasons: (1) Plaintiffs fail to state a 22 cognizable claim because Cenlar’s March 2022 declaration confirms that Defendants fully 23 complied with § 2923.5 and (2) Plaintiffs’ claim fails as a matter of law because the Property has 24 already been sold and the only remedy for a violation of § 2923.5 is postponement of an 25 impending foreclosure. (Docs. 10-1 at 12–31; 13-1 at 8–9.) 26 1. March 2022 Declaration 27 Plaintiffs allege that Defendants violated § 2923.5(a)(2), because despite residing at the 28 property when the notice of default was recorded on May 5, 2022, they “received no mail or 1 messages” from Defendants to assess the financial situation and explore options to avoid 2 foreclosure. (Doc. 1-4, ¶ 19.) In response, Defendants point to the March 2022 declaration— 3 which was both recorded with the notice of default on May 5, 2022, and attached as an exhibit to 4 Plaintiffs’ complaint—on which the assigned mortgage servicer attests, by checking a line next to 5 pre-prepared language, that she took certain steps to contact Plaintiffs in conformance with 6 § 2923.5. (Doc. 1-2 at 30–31.) Defendants argue that Plaintiffs fail to state a claim under 7 § 2923.5(a)(2) because Plaintiffs’ allegations that they did not receive proper notice is 8 contradicted by the recorded March 2022 declaration. 9 Defendant Citibank cites to Wyman v. First Am. Title Ins. Co., No. C-16-07079-WHA, 10 2017 WL 1508864, at *3 (N.D. Cal. Apr. 27, 2017), and Major v. Wells Fargo Bank, No. 14-CV- 11 998-LAB-RBB, 2014 WL 4103936, at *3 (S.D. Cal. Aug. 18, 2014), to support its proposition 12 that a declaration recorded with a notice of default is sufficient to satisfy a defendant’s obligations 13 under § 2923.5. (Doc. 10-1 at 13.) The Major court only found the declaration to be sufficient 14 because the plaintiff did not allege sufficient facts to indicate any lack of communication and only 15 made conclusory allegations that the declaration was false. See Major, 2014 WL 4103936, at *3. 16 Wyman held that, only in light of plaintiff’s inability to allege a specific violation regarding the 17 notice of default and the declaration, the declaration was prima facie evidence of an attempt to 18 contact plaintiffs. See Wyman, 2017 WL 1508864, at *3. Plaintiffs have specifically alleged in 19 their complaint that they “received no mail or messages” while indirectly challenging the 20 content—not the existence—of the declaration. 21 The Court finds Defendants’ arguments in favor of dismissal of Plaintiffs’ first cause of 22 action unavailing at the pleading stage because the arguments are rooted entirely on a factual 23 challenge. See Lee, 250 F.3d at 688 (“Factual challenges to a plaintiff’s complaint have no 24 bearing on the legal sufficiency of the allegations under Rule 12(b)(6).”). Defendants allege that 25 the recorded March 2022 declaration indicates compliance with § 2935.5(a)(5), however 26 Plaintiffs allege that Defendants did not make any contact in violation of § 2935.5(a)(5). (Docs. 27 10-1 at 12–13; 13-1 at 8–9; 1-4 at ¶ 19.) The Court cannot resolve such a factual disagreement at 28 the pleadings stage. See Barrionuevo v. Chase Bank, N.A., 885 F. Supp. 2d 964, 977 (N.D. Cal. 1 2012) (“When a plaintiff’s allegations dispute the validity of defendant’s declaration of 2 compliance in a Notice of Default . . . the plaintiff has plead[ed] enough facts to state a claim to 3 relief that is plausible on its face.”). Plaintiffs have plausibly alleged that Defendants did not 4 contact them prior to recording the notice of default to assess Plaintiffs’ financial situation and 5 explore options to avoid foreclosure in violation of § 2923.5(a)(2). Therefore, Plaintiffs have 6 properly pled a violation of § 2923.5(a)(2). 7 2. Relief Under § 2923.5 8 Defendants argue that even if Plaintiffs state a cognizable claim under § 2923.5, Plaintiffs 9 have no available relief because the only remedy for a violation of § 2923.5 is postponement of 10 an impending foreclosure. (Docs. 10-1 at 12; 13-1 at 9–10.) Because it is undisputed the 11 Property was already sold in a foreclosure sale on September 7, 2022, Defendants argue that 12 Plaintiffs have failed to state a claim upon which any relief can be granted. (Docs. 1-4 at ¶ 12; 13 10-1 at 12; 13-1 at 9–10.) The Court agrees. See Mabry v. Superior Ct., 185 Cal. App. 4th 208, 14 214, 235 (2010) (explaining that the only remedy available under § 2923.5 is “a postponement of 15 an impending foreclosure to permit the lender to comply with” § 2923.5); Herrejon v. Ocwen 16 Loan Servicing LLC, 990 F. Supp. 2d 1186, 1210 (E.D. Cal. Nov. 1, 2013) (noting “if the 17 foreclosure sale has occurred, section 2923.5 provides plaintiffs no remedy”). Defendants’ 18 motions to dismiss Plaintiffs’ first cause of action are GRANTED. Because there is no way to 19 cure this defect in an amended complaint, this dismissal is without leave to amend. 20 B. Count Two: Violation of California Civil Code § 2924(a)(1) 21 Count Two is based on a violation of California Civil Code § 2924(a)(1). Plaintiffs 22 indicated in their oppositions that they have abandoned this cause of action. (Docs. 18-1 at 1; 23 19-1 at 1.) The motion to dismiss Count Two is GRANTED without leave to amend. 24 C. Count Three: Violation of California Civil Code § 2924.9 25 Plaintiffs’ allege Defendants’ violated California Civil Code § 2924.9, which requires that 26 a mortgage servicer send the borrower a written communication containing specific information 27 regarding foreclosure prevention alternatives within five business days after recording a notice of 28 default. The remedy for § 2924.9 is governed by § 2924.12, which states: “After a trustee’s deed 1 upon sale has been recorded, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized 2 agent shall be liable to a borrower for actual economic damages . . . resulting from a material 3 violation of . . . section 2924.9.” Cal. Civ. Code 2924.12(b) (emphasis added). 4 California Civil Code § 2924.12(b) provides a remedy only for a “material violation” of 5 § 2924.9. “A material violation occurs where the violation: (1) affects the borrower’s loan 6 obligations, (2) disrupts the borrower’s loan modification process, or (3) causes the borrower to 7 suffer harm that he would not have otherwise suffered related to his right to be considered for loss 8 mitigation options.” Mountjoy v. Seterus, Inc., No. 2:15-CV-02204-DJC-DB, 2023 WL 4086763, 9 at *11 (E.D. Cal. June 20, 2023). Though some district courts within the Ninth Circuit “have held 10 that materiality is a question that cannot be resolved at the pleading stage, Plaintiff still must 11 plead something to satisfy 2924.12’s materiality requirement.” Galvez v. Wells Fargo Bank, 12 N.A., No. 17-CV-06003-JSC, 2018 WL 4849676, at *5 (N.D. Cal. Oct. 4, 2018). 13 1. Citibank 14 Citibank argues that § 2924.9 does not apply to Citibank because it is not a loan servicer. 15 (Doc. 10-1 at 8.) This is correct. Section 2924.9 only imposes obligations on a “mortgage 16 servicer.” Cal. Civ. Code § 2924.9. A “mortgage servicer” is an “entity who directly services a 17 loan, or who is responsible for interacting with the borrower” and “managing the loan account on 18 a daily basis.” Cal. Civ. Code § 2920.5. Plaintiffs explicitly state that Cenlar is the loan servicer 19 and Citibank is the beneficiary of the mortgage loan. (Doc. 1-4, ¶ 2.) Defendant Citibank’s 20 motion to dismiss Count Three is GRANTED without leave to amend. 21 2. Cenlar 22 Cenlar argues that Plaintiffs cannot allege noncompliance with § 2924.9 “merely by 23 saying they did not receive anything.” (Doc. 13-1 at 6.) To the contrary, Plaintiffs allege that 24 Cenlar failed to notify them of any foreclosure prevention alternatives within five business days 25 after the notice of default was recorded. (Doc. 1-4, ¶ 33.) Plaintiffs further allege that they were 26 living in the Property when the notice of default was recorded and “did not receive any phone 27 calls or phone messages, and did not receive any pieces of mail that referred to discussions about 28 alternatives to foreclosure before it was commenced.” (Doc. 1-4, ¶ 34.) 1 Notwithstanding these allegations, Cenlar argues for dismissal of this claim with prejudice 2 because Plaintiffs fail to allege why their purported non-receipt of communications amounted to a 3 material violation. (Doc. 13-1 at 11.) Plaintiffs fail to directly respond to Cenlar’s materiality 4 argument, but they argue in relation to the first cause of action that Cenlar failed to give Plaintiffs 5 any loss mitigation options after recording the notice of default. (Doc. 18-1 at 12.) Plaintiffs 6 argue that as a result, they “lost the chance to receive a loan modification that they would 7 otherwise have been eligible for” and they suffered harm because they “had to pay additional 8 interest & late charges and fees associated with inspection on the property which servicers 9 normally do every month and is standard procedure when foreclosure activity is initiated.” (Doc. 10 18-1 at 12.) Plaintiffs allege that Cenlar failed to notify them via mail or messages of any 11 foreclosure prevention alternatives within five business days after the notice of default was 12 recorded, as required by § 2924.9. (Doc. 1-4, ¶ 33.) Furthermore, Plaintiffs allege that had they 13 received the contact and communication required under § 2924.9, “they would have taken action 14 to avoid the foreclosure of the Subject Property with other lending sources.” (Doc. 1-4, ¶ 34.) 15 Instead, Plaintiffs allege Defendant Cenlar foreclosed on the property and recorded the notice of 16 sale in September 2022. (Doc. 1-4, ¶ 12.) 17 Two districts in California recently found indistinguishable allegations sufficiently alleged 18 a material violation of § 2924.9. See Warren v. PNC Bank Nat’l Ass., 671 F. Supp. 3d 1035, 19 1045 (N.D. Cal. Apr. 30, 2023) (plaintiff alleged the servicer did not contact him regarding 20 foreclosure alternatives before recording notice of default; this plausibly alleged a material 21 violation because he further alleged that such a communication would have caused him to take 22 action to avoid foreclosure); Scott v. Cenlar FSB, No. 2:23-CV-05473-SVW-MRW, 2023 WL 23 6881906, at *2 (C.D. Cal. Sep. 28, 2023) (plaintiff sufficiently alleged materiality by alleging that 24 if he had received required communication, he would have taken action to avoid foreclosure). 25 Plaintiffs’ allegations plausibly demonstrate that their loan modification process was affected by 26 Cenlar’s violation of § 2924.9 because Cenlar’s lack of communication precluded Plaintiffs from 27 taking action through other lending sources. (Doc. 1-4, ¶ 34.) Therefore, the Court finds that 28 Plaintiffs have properly alleged a material violation of § 2924.9 by Cenlar. Cenlar’s motion to 1 dismiss the third cause of action is DENIED. 2 D. Count Four: Negligence 3 Plaintiffs’ fourth cause of action alleges that Defendants were negligent in violating the 4 HBOR and thus, Defendants breached their duty of ordinary care and good faith. (Doc. 1-4, 5 ¶ 37.) A negligence claim has four elements: “(1) the defendant owed the plaintiff a legal duty, 6 (2) the defendant breached the duty, and (3) the breach proximately or legally caused (4) the 7 plaintiff’s damages or injuries.” Thomas v. Stenberg, 206 Cal. App. 4th 654, 662 (2012). 8 Defendants move to dismiss the negligence claim on the grounds that they owed Plaintiffs no 9 duty of care. (Docs. 10-1 at 16–17; 13-1 at 11–13.) The Court agrees. 10 Under the economic loss doctrine, “[i]n general, there is no recovery in tort for negligently 11 inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or 12 property damage,” when parties are in contractual privity. Sheen v. Wells Fargo Bank, N.A., 12 13 Cal. 5th 905, 922 (2022) (citation omitted).2 “[I]n the lender-borrower context,” the “general 14 rule” is that a “financial institution owes no duty of care to a borrower when the institution’s 15 involvement in the loan transaction does not exceed the scope of its conventional role as a mere 16 lender of money.” Id. Thus, “when a borrower requests a loan modification, a lender owes no 17 tort duty sounding in general negligence principles to ‘process, review and respond carefully and 18 completely to’ the borrower’s application.” Id. at 948. Plaintiffs and Defendants are in 19 contractual privity, and the negligence claim arises from their lender-borrower relationship. 20 Accordingly, Defendants’ motions to dismiss the negligence claim are GRANTED without leave 21 to amend as there does not appear to be any way to cure this defect. 22 E. Count Five: Wrongful Foreclosure 23 In Count Four, Plaintiffs allege wrongful foreclosure—a common law tort claim “to set 24 aside a foreclosure sale, or an action for damages resulting from the sale, on the basis that the 25 foreclosure was improper.” Sciarratta v. U.S. Bank Nat’l Assn., 247 Cal. App. 4th 552, 561 26 (2016). The elements for wrongful foreclosure are: “(1) the trustee or mortgagee caused an 27 28 2 Sheen, which was decided shortly after the opposition briefs were filed in this case, directly overruled Alvarez v. 1 illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a 2 mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or 3 mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges 4 the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused 5 from tendering.” Lona v. Citibank, N.A., 202 Cal. App. 4th 89, 104 (2011). Defendants 6 challenge Plaintiffs’ wrongful foreclosure claim on each of the three elements. 7 1. Illegal, Fraudulent, or Willfully Oppressive Trustee’s Sale 8 a. Illegal Sale 9 Defendants assert that the wrongful foreclosure claim necessarily fails because it is based 10 on allegations that Defendants violated California Civil Code §§ 2923.5, 2924(a)(1), 2934a(a)(1), 11 2924a(e), and 2924.9, which they contend are inadequately pled or fail as a matter of law. (Docs. 12 10-1 at 17–18; 13-1 at 13–15.) Because Court dismissed Plaintiffs’ first cause of action under 13 § 2923.5 with prejudice and Plaintiffs withdrew their second cause of action under §§ 2924(a)(1), 14 2934a(a)(1), and 2924a(e), none of those theories of liability can form the basis for a wrongful 15 foreclosure based on an illegal sale. However, because the Court finds that Plaintiffs sufficiently 16 alleged a claim under § 2924.9 against Cenlar, the Court will analyze the wrongful foreclosure by 17 illegal sale allegation in the context of this alleged § 2924.9 violation. 18 “[M]ere technical violations of the foreclosure process will not give rise to a tort claim; 19 the foreclosure must have been entirely unauthorized on the facts of the case.” Miles v. Deutsche 20 Bank Nat’l Tr. Co., 236 Cal. App. 4th 394, 409 (2015). An alleged violation is a “mere technical 21 violation” unless the plaintiff can “show both that there was a failure to comply with the 22 procedural requirements for the foreclosure sale and that the irregularity prejudiced the plaintiff.” 23 Morris v. JPMorgan Chase Bank, N.A., 78 Cal. App. 5th 279, 294–95 (2022). Because the Court 24 concludes that Plaintiffs have properly alleged a § 2924.9 violation and the resulting prejudice, 25 (Doc. 1-4, ¶ 34), Plaintiffs have alleged more than a mere technical violation. Therefore, the 26 wrongful foreclosure by illegal sale claim can proceed against Cenlar. See Santana v. BSI Fin. 27 Servs., Inc., 495 F. Supp. 3d 926, 948 (S.D. Cal. 2020) (finding a properly alleged claim for 28 wrongful foreclosure based on a properly alleged statutory violation of a California Civil Code). 1 b. Fraudulent Sale 2 It is possible that Plaintiffs are attempting to allege that both Defendants caused a 3 fraudulent sale. (See Doc. 1-4, ¶ 44 (alleging that Defendants “caused an illegal, fraudulent, or 4 willfully oppressive sale of the Subject Property pursuant to a power of sale in a mortgage or deed 5 of trust”); Docs. 18-1 at 19; 19-1 at 19 (arguing that “Defendant[s] willingly and maliciously 6 recorded the notice of default so they could claim they were in default and thereafter file a 7 fraudulent notice of sale,” and that “Defendant[s] knew the house had equity and knew 8 foreclosing on the property would quickly pay off the entire loan.”) However, the “fraudulent 9 sale” prong of wrongful foreclosure is subject to the heightened pleading requirements of Federal 10 Rule of Civil Procedure 9(b). See Herrejon v. Ocwen Loan Servicing, LLC, 980 F. Supp. 2d 11 1186, 1203 (E.D. Cal. Nov. 1, 2013) (explaining that a claim for wrongful foreclosure is subject 12 to the heightened pleading standard of Rule 9(b)). Rule 9(b) requires a plaintiff to “state with 13 particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and 14 other conditions of a person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). “Averments 15 of fraud must be accompanied by the who, what, where, when, and how of the misconduct 16 charged.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (internal 17 quotations omitted). Plaintiffs have not met the heightened pleading standards of Rule 9. 18 2. Prejudice or Harm to Plaintiffs 19 Defendants further argue that Plaintiffs failed to plead facts demonstrating they were 20 prejudiced or harmed by Defendants’ violation of § 2924.9. (Docs. 10-1 at 18; 13-1 at 14.) 21 Though Plaintiffs generally allege they “suffered prejudice or harm as a result of the wrongful 22 foreclosure trustee sale,” Plaintiffs “re-allege and incorporate all preceding paragraphs as though 23 set forth fully” in the wrongful foreclosure cause of action. (Doc. 1-4, ¶ 42.) Because Plaintiffs 24 sufficiently allege in preceding causes of action that they suffered harm, such as immediate 25 damage to their credit and emotional and mental suffering due to Defendants’ wrongful conduct, 26 (Doc. 1-4, ¶ 29), the Court finds that Plaintiffs plausibly alleged they suffered harm as a result of 27 Defendants’ alleged wrongful foreclosure. 28 /// 1 3. Tender Rule 2 Defendants also argue the wrongful foreclosure claim fails because Plaintiffs failed to 3 allege they tendered the full amount of the loan. (Docs. 10-1 at 19–20; 13-1 at 14–15.) “While 4 tendering is required and not excused, a plaintiff seeking to set aside an irregular sale must allege 5 tender of the full amount of the loan to maintain any cause of action that either is based on the 6 wrongful foreclosure allegations or seeks redress from that foreclosure.” Turner v. Seterus, Inc., 7 27 Cal. App. 5th 516, 525 (2018). Plaintiffs do not allege they tendered the full amount of the 8 loan; rather, specifically allege they are “excused from the tender requirement because of 9 [Defendants] violations of Civ. Code § . . . 2924.9.” (Doc. 1-4, ¶ 46.) 10 The tender requirement may only be excused when, “(1) the underlying debt is void, (2) 11 the foreclosure sale or trustee’s deed is void on its face, (3) a counterclaim offsets the amount 12 due, (4) specific circumstances make it inequitable to enforce the debt against a party challenging 13 the sale, or (5) the foreclosure sale has not yet occurred.” Chavez v. Indymac Mortgage Servs., 14 219 Cal. App. 4th 1052, 1062 (2013). Furthermore, the mortgagor must establish that there was 15 no breach on the mortgagor’s part that would have authorized the foreclosure. See Miles, 236 16 Cal. App. 4th at 408–09. Here, Plaintiffs only generally allege that the violations excuse them 17 from tendering the full amount of the loan. (Doc. 1-4, ¶ 46.) Plaintiffs provide no authority to 18 support the general allegation that a defendant’s violation of § 2924.9 is an exception to the 19 tender rule under a claim for wrongful foreclosure. Similarly, Plaintiffs do not allege that there 20 was no breach on their part that could have authorized Defendants’ foreclosure of the Property. 21 A claim for wrongful foreclosure requires Plaintiffs to sufficiently allege each of the three 22 elements. See Lona, 202 Cal. App. 4th at 104. Although Plaintiffs have sufficiently alleged that 23 Cenlar allegedly violated § 2924.9, and that Plaintiffs were prejudiced from that alleged violation, 24 Plaintiffs’ complaint fails to plead facts demonstrating they are excused from the tender rule. To 25 the extent they are attempting to allege wrongful foreclosure by fraudulent sale, Plaintiffs fail to 26 meet the heightened pleading standard for fraud under Rule 9(b). Therefore, Plaintiffs have not 27 sufficiently plead facts on each element of wrongful foreclosure. Because Plaintiffs have 28 requested leave to amend, and because it is possible that the complaint could be amended to cure 1 the deficiencies regarding fraud and the tender rule, Defendants’ motions to dismiss the fifth 2 cause of action is GRANTED with leave to amend. 3 F. Count Six: Interpleader 4 Count Six is a request that this Court “intervene by way of interpleader” to award 5 Plaintiffs “all surplus funds from the trustee’s sale” of the disputed property pursuant to 6 California Code of Civil Procedure § 386. (Doc 1-4, ¶ 59.) Plaintiffs have indicated they will no 7 longer pursue this cause of action. (Docs. 18-1 at 1; 19-1 at 1.) The motion to dismiss Count Six 8 is GRANTED without leave to amend. 9 G. Count Seven: Unfair Business Practices 10 Plaintiffs allege a violation of the UCL, which prohibits “unfair competition,” which is 11 “any unlawful, unfair or fraudulent business act of practice.” Cal. Bus. & Prof. Code § 17200. 12 “A business act or practice may violate the UCL if it is either ‘unlawful,’ ‘unfair,’ or 13 ‘fraudulent,’” as “[e]ach of these three adjectives captures ‘a separate and distinct theory of 14 liability.’” Rubio v. Cap. One Bank, 613 F.3d 1195, 1203 (9th Cir. 2010). To plead a violation of 15 the “unlawful” prong, a plaintiff must plead a violation of another statute or common law. 16 Shumake v. Caliber Home Loans, Inc., No. CV16-4296-CA(AGRX), 2017 WL 1362681, at *8 17 (C.D. Cal. Jan. 6, 2017). To plead a violation of the “unfair” prong, a plaintiff must allege a 18 business practice that “‘offends an established public policy’ or is ‘immoral, unethical, 19 oppressive, unscrupulous, or substantially injurious to consumers.’” McDonald v. Coldwell 20 Banker, 543 F.3d 498, 506 (9th Cir. 2008) (quoting People v. Casa Blanca Convalescent Homes, 21 Inc., 159 Cal. App. 3d 509, 530 (1984)). To allege a violation of the “fraudulent” prong, “it is 22 only necessary to show that members of the public are likely to be deceived.” Buller v. Sutter 23 Health, 160 Cal. App. 4th 981, 986 (2008). “The UCL, while broad in scope, is limited in 24 remedies. Private individuals . . . may win restitution or injunctive relief, but they cannot obtain 25 damages or attorney fees.” De La Torre v. CashCall, Inc., 5 Cal. 5th 966, 983 (2018) (citations 26 omitted). 27 Plaintiffs allege violations of the unfair, unlawful, and fraudulent prongs of the UCL 28 stemming from Defendants’ HBOR violations and a violation of 15 U.S.C. § 1641(g). (Doc. 1-4, 1 ¶ 62.) The state and federal law claims are addressed separately. 2 1. Plaintiffs’ UCL Cause of Action Predicated on the HBOR Violations 3 Plaintiffs allege that Defendants “violated the ‘unfair,’ ‘unlawful,’ and ‘fraudulent’ prongs 4 of the UCL resulting in injury and economic loss to Plaintiffs when they purposefully violated 5 Civ. Code §§ 2923.5, 2924(a)(1), 2934a(a)(1) and 2924.9.” (Doc. 1-4, ¶ 62.) Plaintiffs further 6 allege that this “unlawful and unfair conduct has caused substantial harm to Plaintiffs,” including 7 “actual, pecuniary injury of the loss of the equity in the value of the Subject Property, and the 8 costs of seeking a remedy for [Defendants] wrongful actions.” (Doc. 1-4, ¶¶ 65, 68.) Defendants 9 argue that Plaintiffs’ UCL claim should be dismissed on each prong. (Docs. 10-1 at 21–24; 13-1 10 at 16.) 11 Defendants argue that Plaintiffs have not alleged any unlawful business practice because 12 Plaintiffs have failed to properly state a claim for a violation of any law. (Docs. 10-1 at 21–22; 13 13-1 at 16.) However, the Court found above that Plaintiffs sufficiently alleged a § 2924.9 claim 14 against Cenlar.3 Thus, Cenlar’s motion to dismiss is DENIED as to the unlawful prong of the 15 UCL, and Citibank’s motion to dismiss this theory of liability is GRANTED without leave to 16 amend. 17 Plaintiffs allege unfair conduct occurred, “resulting in injury and economic loss,” because 18 the “information provided to Plaintiffs was certainly misleading and not consistent as to the status 19 of the loan modification and what [they] w[ere] supposed to do to satisfy the lender’s demands.” 20 (Doc. 1-4 at ¶¶ 63, 65–67.) Plaintiffs attempt to clarify this unfair conduct in their opposition by 21 stating that Defendants allegedly collected “various improper fees, costs and charges, that are 22 either not legally due under the mortgage contract or California law, or that are in excess of 23 amounts legally due,” and Defendants “failed to send any written notifications as to any 24 alternatives to foreclosure or make any calls in this regard even.” (Docs. 18-1 at 23; 19-1 at 23.) 25 Because Plaintiffs’ statements in their opposition briefs are not in the complaint, this Court is 26 27 3 Because the Court has already dismissed Plaintiffs’ §§ 2923.5 and 2924.9 (as to Citibank) claims, and Plaintiffs 28 cease to pursue the §§ 2924(a)(1) and 2934a(a)(1) claims, the Court only addresses Plaintiffs’ derivative § 2924.9 1 unable to consider Plaintiffs’ statements regarding the improper collection of fees. See Susoeff v. 2 Pamulapati, 2022 WL 256866, at *2 (E.D. Cal. Jan. 27, 2022). In the complaint, Plaintiffs fail to 3 allege “with reasonable particularity the facts supporting the statutory elements” of the unfair 4 conduct violation and how the conduct was unfair such that it was substantially injurious. See 5 Khoury v. Maly’s of California, Inc., 14 Cal. App. 4th 612, 619 (1993); see also McDonald, 543 6 F.3d at 506. Therefore, Defendants’ motions to dismiss the unfair business practices prong of the 7 UCL are GRANTED with leave to amend. 8 Defendants also allege that Plaintiffs have insufficiently pled allegations of fraud under 9 the UCL. (Docs. 10-1 at 23–24; 13-1 at 16.) Claims brought under the UCL’s fraud prong must 10 satisfy the particularity requirements of Federal Rule of Civil Procedure 9(b). See Kearns v. Ford 11 Motor Co., 567 F.3d 1120, 112 (9th Cir. 2009). Plaintiffs allege only that Defendants provided 12 information that “was certainly misleading and not consistent as to the status of the loan 13 modification.” (Doc. 1-4, ¶ 67.) Plaintiffs have not alleged “the who, what, when, where, and 14 how” required under Rule 9(b). Vess, 317 F.3d at 1106. Defendants’ motions to dismiss on the 15 fraud prong of the UCL are GRANTED with leave to amend. 16 2. Plaintiffs’ UCL Cause of Action Predicated on a Violation of 15 U.S.C. § 1641(g) 17 Consumer Credit Protection Act, 15 U.S.C. § 1641(g), provides that when a mortgage 18 loan is sold, transferred, or assigned to a third party, the new owner of the debt must notify the 19 borrower of certain information in writing within thirty days of the transfer. A creditor that 20 violates § 1641(g) is liable for actual damages or specified statutory damages. 15 U.S.C. 21 § 1640(a)(1)–(2). 22 Citibank argues that Plaintiffs have not pled sufficient facts to state a claim under 23 § 1641(g). (Doc. 10-1 at 22–23.) Plaintiffs allege only that Defendants “fail[ed] to advise 24 homeowners in writing within 30 days that their Deed of Trust was transferred or assigned to a 25 third party, and that it is the new owner or assignee of the debt is illegal in violation of Title 15 26 U.S.C. § 1641(g).” (Doc. 1-4, ¶ 64.) It appears that Plaintiffs base this argument on an alleged 27 assignment of the deed of trust, which they claim triggered Defendants’ disclosure obligations 28 under § 1641(g). (Doc. 1-4, ¶ 64.) However, the § 1641(g) notice requirements apply only when 1 a mortgage loan—not a deed of trust—is transferred or assigned to a third party. See Cheatham v. 2 Real Time Resolutions, Inc., No. 2:19-CV-08911-RGK-JPR, 2020 WL 1000606, at *3 (C.D. Cal. 3 Jan 7, 2020) (holding plaintiff insufficiently pled a § 1641(g) claim when plaintiff simply pled 4 that the defendant failed to notify her of the assignment of the deed of trust). Therefore, without 5 an allegation that Defendants—as the new owner or assignee of Plaintiffs’ mortgage loan—failed 6 to notify Plaintiffs in writing of the transfer or assignment, the Court finds that Plaintiffs have not 7 sufficiently pled a claim for a violation of 15 U.S.C. § 1641(g). Thus, Defendants’ motions to 8 dismiss Plaintiffs’ claim for a violation of 15 U.S.C. § 1641(g) is GRANTED with leave to 9 amend. 10 H. Count Eight: Cancellation of Written Instruments 11 Plaintiffs seek cancellation of the recorded notice of default, notice of trustee’s sale, and 12 trustee’s deed upon sale. (Doc. 1-4, ¶ 72.) Under California Civil Code § 3412, a court may 13 order the cancellation of a written instrument if “there is a reasonable apprehension that if left 14 outstanding it may cause serious injury to a person against whom it is void or voidable.” To 15 obtain cancellation of an instrument, a plaintiff “must show that he will be injured or prejudiced if 16 the instrument is not cancelled, and that such instrument is void or voidable.” Zendejas v. GMAC 17 Wholesale Mortg. Corp., No. 1:10-CV-0184-OWW-GSA, 2010 WL 2629899, at *7 (E.D. Cal. 18 June 29, 2010). A plaintiff must allege “facts, ‘not mere conclusions, showing the apparent 19 validity of the instrument designated, and point out the reason for asserting that it is actually 20 invalid.’” Santana v. BSI Fin. Servs., Inc., 495 F. Supp. 3d 926, 950 (S.D. Cal. 2020) (quoting 21 Ephraim v. Metro Tr. Co. of Cal., 28 Cal. 2d 824, 833 (1946)). “Cancellation of an instrument is 22 essentially a request for rescission of the instrument.” Deutsche Bank Nat’l Tr. Co. v. Pyle, 13 23 Cal. App. 5th 513, 523 (2017). 24 Plaintiffs’ complaint alleges that they have “reasonable belief” that the notice of default, 25 notice of trustee’s sale, and trustee’s deed upon sale are void or void ab initio. (Doc. 1-4, ¶ 72.) 26 However, Plaintiffs fail to plead any facts to support the allegation that the instruments are void 27 or voidable as required under § 3412. See Zendejas, 2010 WL 262899, at *7 (holding that merely 28 indicating that the instruments were void or voidable without explaining why was insufficient for 1 an allegation under § 3412). Rather, Plaintiffs merely reiterate that the instruments were “illicit 2 recordings” and that “the disparaging instruments were intended to affect Plaintiffs and their 3 home.” (Docs. 18-1 at 24; 19-1 at 24.) Because Plaintiffs fail to demonstrate how the 4 instruments are “voidable or void ab initio” and would cause “serious injury” if not canceled, the 5 Court grants Defendants’ motions to dismiss Count Eight with leave to amend. 6 CONCLUSION 7 For the reasons set forth above: 8 1. Defendants’ requests for judicial notice are GRANTED. 9 2. Defendants’ motions to dismiss Plaintiffs’ first, second, fourth, and sixth causes of 10 action are GRANTED without leave to amend. 11 3. Defendants’ motions to dismiss Plaintiffs’ third cause of action are granted in part and 12 denied in part as follows: 13 a. Defendant Citibank’s motion to dismiss Plaintiffs’ third cause of action is 14 GRANTED without leave to amend; and 15 b. Defendant Cenlar’s motion to dismiss Plaintiffs’ third cause of action is 16 DENIED. 17 4. Defendants’ motions to dismiss Plaintiffs’ fifth and eighth causes of action are 18 GRANTED with leave to amend. 19 5. Defendants’ motions to dismiss Plaintiffs’ seventh cause of action are granted in part 20 and denied in part as follows: 21 a. Defendant Citibank’s motion to dismiss Plaintiffs’ unlawful prong of the 22 UCL cause of action is GRANTED without leave to amend. 23 b. Defendant Cenlar’s motion to dismiss Plaintiffs’ unlawful prong of the UCL 24 cause of action is DENIED. 25 c. Defendants’ motions to dismiss Plaintiffs’ unfair prong of the UCL cause of 26 action is GRANTED with leave to amend. 27 d. Defendants’ motion to dismiss Plaintiffs’ fraud prong of the UCL cause of 28 action is GRANTED with leave to amend; and 1 e. Defendants’ motion to dismiss Plaintiffs’ 15 U.S.C. § 1641(g) cause of 2 action is GRANTED with leave to amend. 3 4 IT IS SO ORDERED. 5 | Dated: _ September 4, 2024 Cerin | Tower TED STATES DISTRICT JUDGE 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18