UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA
February 5, 2007
GOODRICH & PENNINGTON MORTGAGE FUND, INC., PLAINTIFF,
CHASE MANHATTAN MORTGAGE CORPORATION, DEFENDANT.
The opinion of the court was delivered by: M. James Lorenz United States District Court Judge
ORDER GRANTING MOTION TO DISMISS FIRST AMENDED COMPLAINT [doc. #47]
Defendant Chase Manhattan Mortgage Corporation ("Chase") moves to dismiss plaintiff Goodrich & Pennington Mortgage Fund, Inc's ("G&P") first amended complaint ("FAC"). Plaintiff opposes the motion. The Court finds this matter suitable for determination on the papers submitted and without oral argument pursuant to Civil Local Rule 7.1(d)(1). Having fully considered the matters presented, the Court enters the following decision.
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal of a claim under this Rule is appropriate only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Navarro, 250 F.3d at 732. Dismissal is warranted under Rule 12(b)(6) when the complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) ("Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law."). Alternatively, a complaint may be dismissed where it presents a cognizable legal theory yet fails to plead essential facts under that theory. Robertson, 749 F.2d at 534.
In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe them in the light most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). But legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). When ruling on a motion to dismiss, the court may consider the facts alleged in the complaint, documents attached to the complaint, documents incorporated by reference in the complaint, and matters of which the Court takes judicial notice. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003); Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998).
Plaintiff G&P was an originator of home mortgage loans. Under a Corporate Finance Program, Advanta Mortgage Corporation USA ("Advanta")*fn1 purchased mortgage loans from originators like G&P and securitized them by placing them into large pools and selling interest in the pools to investors as mortgage-backed securities. The Corporate Finance Program was memorialized in a series of agreements between Advanta and G&P. Advanta pledged as collateral the cash flow to certain assets known as "residual interests" to secure Advanta's contractual obligations to G&P. Id. at ¶ 8(e).
On February 28, 2001, Chase purchased certain assets from Advanta, including the residual interests in which G&P claims an interest. Chase did not, however, assume Advanta's obligations under any agreements between Advanta and G&P. Id., Exh. F. But G&P contends that without its knowledge or consent, Advanta and Chase wrongfully executed an "Agreement Regarding Corporate Finance Program" as part of the sale of Advanta's assets to defendant, and as a result, is liable to G&P. The agreements between Advanta and Chase are found in two written contracts dated January 8, 2001 and February 28, 2001.
On February 28, 2005, G&P filed a Verified Complaint in the Superior Court for the County of San Diego, California contending that Chase has asserted control over G&P's interest from the subject loans contrary to G&P's possessory interest. Chase timely removed the action to the federal court on March 30, 2005.
Defendant moved to dismiss plaintiff's breach of contract and conversion claims which the Court granted finding that there was no contract between G&P and Chase. The Court granted plaintiff leave to file an amended complaint. Plaintiff filed a FAC to which defendant filed the present motion to dismiss the complaint in its entirety. The FAC asserts five causes of action: declaratory relief; breach of contract to third-party beneficiary; breach of an implied-in-fact contract; negligent impairment of collateral; and accounting.
1. Third-Party Beneficiary
Plaintiff G&P contends that it is a third-party beneficiary to the Advanta/Chase Agreements.*fn2 A third party to a contract, who is an express beneficiary to that contract, has standing to enforce the contract. Cal. Civ. Code § 1559. But "[a]n intent to make the obligation inure to the benefit of the third party must have been clearly manifested by the contracting parties." Schauer v. Mandarin Gems of Cal., Inc., 125 Cal. App. 4th 949, 957-58 (2005). Moreover, the party claiming status as a third-party beneficiary has the burden of proving that the "contracting parties actually promised the performance which the third party beneficiary seeks." Whiteside v. Tenet Healthcare Corp., 101 Cal. App. 4th 693, 708 (2002) To assert a claim as a third-party beneficiary, "a plaintiff must plead a contract which was made expressly for his benefit and one in which it clearly appears that he was a beneficiary . . . .
The fortuitous fact that he may have suffered detriment by reason of the nonperformance of the contract does not give him a cause of action" Luis v. Orcutt Town Water Co., 204 Cal. App.2d 433, 441-442 (1962); see also, Garcia v. Truck Ins. Exchange, 36 Cal.3d 426, 436 (1984)(A third party beneficiary must show, as a matter of contract interpretation, that the contracting parties actually intended to promise the performance which the third party beneficiary seeks.).
Plaintiff alleges in a conclusory manner that it is a third-party beneficiary under the contracts January 8, 2001 Purchase and Sale Agreement or the February 28, 2001 Agreement Regarding Corporate Finance Program (collectively "Chase/Advanta Agreements"). But as defendant correctly notes, no such intent appears from the terms of the Chase/Advanta Agreements: "In sum, the express intent to the contracts was to facilitate the sale of Advanta's assets and establish Chase as the servicer of mortgages under the Corporate Finance Program with no assumed obligations to the mortgage originators, not to create contractual obligations running from Chase to G&P." (Reply Memorandum at 9, fn 5).
Plaintiff's FAC fails to allege facts that show it is an intended third-party beneficiary under the Chase/Advanta Agreements and accordingly, the Court must dismiss plaintiff's second cause of action.
2. Breach of Implied Contract
An implied contract is one whose existence and terms are manifested by conduct. (Civ. Code, § 1621) It arises from "mutual agreement and intent to promise where the agreement and promise have not been expressed in words." Silva v. Providence Hospital of Oakland 14 Cal.2d 762, 773 (1939). A plaintiff seeking to state a cause of action for breach of an implied contract must allege mutual assent and consideration. Division of Lab. Law Enforcement v. Transpacific Trans. Co., 69 Cal. App. 3d 268, 275 (1977). A complaint alleging a cause of action for breach of implied contract must state the facts, such as a practice or course of conduct, from which the promise is implied. California Emergency Physicians Medical Group v. PacifiCare of California 111 Cal.App.4th 1127, 1134 (2003).
Chase argues that the breach of an implied contract claim must be dismissed because there is no contract between Chase and G&P based upon course of conduct. Plaintiff contends, however, that the "course of conduct between the parties, evidencing CHASE'S payment of substantial sums to purchase the rights to fees for servicing G&P's loans and receipt of income therefrom, and G&P's knowledge of CHASES'S assumption of loan servicing responsibilities due to its receipt of interest statements, establishes each of the requisite elements of this contract." (Opp. at 9). Plaintiff's suggestion that the receipt of interest statements is sufficient to show a course of conduct is without merit. Moreover, there are no facts pleaded that show the existence of consideration between Chase and plaintiff.
Plaintiff does not allege facts from which an unexpressed mutual agreement or intent to promise may be implied. As currently alleged, the complaint is insufficient to state a cause of action for breach of an implied-in-fact contract.
3. Negligent Impairment of Collateral
The elements of a negligence cause of action are a duty, breach of that duty, proximate cause, and damage. County of Santa Clara v. Atlantic Richfield Co., 137 Cal. App. 4th 292, 318 (2006)(citing Artiglio v. Corning, Inc., 18 Cal. 4th 604, 641 (1998). A contractual relationship can give rise to a duty. J'Aire Corp. v. Gregory, 24 Cal. 3d 799, 803 (1979).
Chase argues that plaintiff cannot state a negligent impairment of collateral cause of action because there is no contractual relationship between plaintiff and Chase based on the allegations contained in the FAC. The Court concurs. The Court previously found that there is no direct contractual relationship between plaintiff and Chase. Further, the Court has found that plaintiff has not alleged a third-party beneficiary relationship or an implied-in-fact contract. Accordingly, based on the allegations as presented in the FAC, Chase cannot owe a duty to plaintiff under either of the Chase/Advanta Agreements and this cause of action must be dismissed.
4. Declaratory Relief and Accounting
Plaintiff's first cause of action alleges that Chase is subject to an arbitration clause found in a G&P/Advanta Agreement. "One of the threads running through federal arbitration jurisprudence is the notion that 'arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" Textile Unlimited, Inc. v. A.BMH & Co., Inc., 240 F.3d 781, 786 (9th Cir. 2001) (quoting AT&T Techs., Inc. v. Communications Workers, 475 U.S. 643, 648 (1986)). Accordingly, although there is a strong and liberal federal policy to enforce arbitration agreements, "such agreements must not be so broadly construed as to encompass claims and parties that were not intended by the original contract." Thomson-CSF, S.A. v. American Arbitration Ass 'n, 64 F.3d 773, 776 (2d Cir. 1995). Because there is no contractual relationship between Chase and plaintiff founded upon an express contract, implied-in-fact contract or as a third-party beneficiary to a contract, Chase cannot be subject to an arbitration clause in an agreement between G&P and Advanta.
Plaintiff's fifth cause of action is for an accounting. Because there is no contractual relationship between G&P and Chase alleged in the FAC, as discussed above, there is no obligation on Chases's part to perform an accounting.
Based on the foregoing, IT IS ORDERED granting defendant's motion to dismiss plaintiff's first amended complaint. IT IS FURTHER ORDERED that should plaintiff intend to amend the complaint in conformity with this Order, it shall do so within 10 days of the filing of this Order. In the absence of a timely filed amended complaint, this case shall be dismissed with prejudice.
IT IS SO ORDERED.