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Permpoon v. Wells Fargo Bank National Association

September 29, 2009

BENJAWAN PERMPOON; JIRAPORN KLASEUK, INDIVIDUALS, PLAINTIFFS,
v.
WELLS FARGO BANK NATIONAL ASSOCIATION; OPTION ONE MORTGAGE CORPORATION; QUALITY LOAN SERVICE CORPORATION; H & R BLOCK MORTGAGE CORPORATION; FIRST AMERICAN LENDERS ADVANTAGE; DREXEL LENDING GROUP; OLD REPUBLIC TITLE COMPANY; AND DOES 1 THROUGH 20, DEFENDANTS.



The opinion of the court was delivered by: Marilyn L. Huff, District Judge United States District Court

ORDER: (1) GRANTING DEFENDANTS WELLS FARGO'S AND H&R BLOCK'S MOTIONS TO DISMISS (2) DENYING AS MOOT PLAINTIFFS' MOTION FOR LEAVE TO AMEND & (3) GRANTING 30 DAYS LEAVE TO AMEND

On May 27, 2009, Plaintiffs Benjawan Permpoon and Jiraporn Klaseuk filed a complaint arising out of foreclosure proceedings on their home. (Doc. No. 1, Compl.) On August 3, 2009, Defendant Wells Fargo Bank, N.A.'s, as trustee for ABFC 2006-OPT2 Trust, ABFC Asset-Backed Certificates, series 2006-OPT2 ("Wells Fargo"), erroneously named Wells Fargo Bank National Association filed a motion to dismiss Plaintiffs' complaint. (Doc. No. 8.) On August 4, 2009, Defendant H&R Block Mortgage Corporation filed a motion to dismiss Plaintiffs' complaint. (Doc. No. 9.) On August 27, 2009, Plaintiffs without leave of court filed a first amended complaint, which the Court construed as a motion for leave to amend the complaint. (Doc. No. 16.) On September 14, 2009, Plaintiffs filed a response in opposition to Defendants' motions to dismiss and a declaration seeking leave to amend or the opportunity to file a motion for voluntary dismissal. (Doc. Nos. 19-20.) Defendants filed their responses in opposition to Plaintiffs' motion for leave to amend on September 14, 2009. (Doc. Nos. 21-22.) On September 21, 2009, Defendants filed replies in support of their motions to dismiss. (Doc. Nos. 23-24.)

The Court, pursuant to its discretion under Local Rule 7.1(d)(1), determined these matters are appropriate for resolution without oral argument and submitted them on the parties' papers on September 22, 2009. (Doc. No. 25.) For the reasons set forth below, the Court grants Defendants' motions to dismiss and denies as moot Plaintiffs' motion for leave to amend.

Background

Plaintiffs' complaint arises from a home loan secured by real property located at 3333 Chamoune Avenue, San Diego, California 92105 (the "Property"). (Doc. No. 1, Compl.) Plaintiffs assert causes of action for: (1) intentional misrepresentation; (2) breach of fiduciary duty; (3) breach of covenant of good faith and fair dealing; (4) declaratory relief' (5) quiet title' (6) Equal Credit Opportunity Act violations; (7) predatory lending; (8) negligence; (9) usury; (10) accounting; (11) violations of TILA and HOEPA; (12) violation of RESPA; (13) violation of FCRA; (14) slander of title; (15) violation of Cal. Bus. & Prof. Code §17200; (16) violation of Cal. Civ. Code §2923.6; and (17) violation of Cal. Civ. Code §2923.5.

On July 26, 2009, Plaintiffs refinanced their primary, single family home by obtaining financing from H&R Block. (Compl. ¶¶ 6-7; Doc. No. 8, Ex. 1.) Defendant First American Lenders Advantage was the trustee of the Property and Defendant Option One Mortgage Corporation was the servicing company of the loan. (Compl. ¶ 8.) Plaintiffs also obtained a second mortgage for a home equity line of credit with Defendant Drexel Lending Group, with Defendant Old Republic Title Company serving as the closing agent and title insurance holder. (Id. ¶ 9.)

As part of the initial loan application process, Plaintiffs were required to state their income and allege that the accurately stated their yearly income. (Id. ¶10.) Plaintiffs allege there was no request for proof of their income and that Defendants did not show Plaintiffs what exact amounts were eventually stated in the loan application. (Id. ¶10.) Plaintiffs allege that on the ultimate loan received, their debt to income ration ended up being 195.275%. Plaintiffs allege that Defendants listed Plaintiffs' income as $12,500 per month, when in fact Plaintiff Permpoon's monthly income was $2,235.67. (Id. ¶11.) Plaintiffs allege that based on their true income, they were unable to qualify for the loan given to them by Defendants. (Id. ¶11.) Plaintiffs also allege that during the course of the loan application process, they failed to receive required disclosures and a Notice of Right to Cancel that included a transaction date and the expiration date of the rescission period. (Id. ¶¶12-13.)

On April 22, 2008, a Notice of Default was recorded in the San Diego Recorder's Office. (Doc. No. 8, Ex. 3.) On July 24, 2008, a Notice of Trustee's Sale was recorded and Plaintiff's allege they received the notice on July 23, 2008. (Id., Ex. 5; Compl. ¶16.) On October 14, 2008, a Trustee's Deed Upon Sale was recorded after the Property was sold to Defendant Wells Fargo. (Id. ¶17; Doc. No. 8, Ex. 8.) Currently, an unlawful detainer action is pending in the San Diego County Superior Court against Plaintiffs Klaseuk and Permpoon. (Compl. ¶¶ 22-24.)

Discussion

I. Motion to Dismiss Pursuant to Fed. R. Civ. Pro. 12(b)(6)

A motion to dismiss a complaint under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of the claims asserted in the complaint. Navarro v. Black, 250 F.3d 729, 731 (9th Cir. 2001). A complaint generally must satisfy only the minimal notice pleading requirements of Federal Rule of Civil Procedure 8(a)(2) to evade dismissal under a Rule 12(b)(6) motion. Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). Rule 8(a)(2) requires that a pleading stating a claim for relief contain "a short and plain statement of the claim showing that the pleader is entitled to relief." The function of this pleading requirement is to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47 (1957). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint does not "suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting id. at 556). "Factual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555 (citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235--36 (3d ed. 2004)). "All allegations of material fact are taken as true and construed in the light most favorable to plaintiff. However, conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim." Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir.1996); see also Twombly, 550 U.S. at 555-56.

"Generally, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion." Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir.1990). The court may, however, consider the contents of documents specifically referred to and incorporated into the complaint. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994). Additionally, the Court may take judicial notice of matters of public record. See Lee v. City of Los Angeles, 250 F.3d 668, 689--90 (9th Cir.2001). Accordingly, the Court takes judicial notice of the documents provided by Defendants, as Plaintiffs refer to and rely on the documents in their complaint and they are matters of public record as all are recorded with the San Diego County Recorder's Office or are part of a court record.

A. Intentional Misrepresentation

Plaintiffs' first cause of action is for intentional misrepresentation (fraud). (Compl. ¶¶ 26-34.) Plaintiffs allege that during the course of loan negotiation and completion of the loan application, Defendants H&R Block and Drexel Lending Group "asked Plaintiffs to state their income, without requesting or requiring documents to prove such statements." (Id. ¶¶ 28-29.) Plaintiffs allege that Defendants "completed the loan application for Plaintiffs and inserted an inflated income for Plaintiffs, without disclosing said change to them," and that "[b]ased on the inflated income, Plaintiffs were able to obtain a loan, through Defendants were clearly aware that such loan could not be afforded by Plaintiffs." (Id. ¶¶ 30-31.) Plaintiffs also allege that "during the loan application process, Defendants failed to inform Plaintiffs of their right to rescind, along with failing to disclose numerous federal safeguards in the application process." (Id. ¶ 32.)

Under California law, the elements of fraud are "false representation, knowledge of its falsity, intent to defraud, justifiable reliance, and damages." Moore v. Brewster, 96 F.3d 1240, 1245 (9th Cir.1996) (quotations omitted). Under Federal Rule of Civil Procedure 9, a Plaintiff must plead fraud with particularity. "Rule 9(b)'s particularity requirement applies to state-law causes of action." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003). "Averments of fraud must be accompanied by 'the who, what, when, where, and how' of the misconduct charged." Id. at 1106 (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir.1997)). "'[A] plaintiff must set forth more than the neutral facts necessary to identify the transaction. The plaintiff must set forth what is false or misleading about a statement, and why it is false.'" Id. at 1006 (quoting Decker v. GlenFed, Inc. (In re GlenFed, Inc. Sec. Litig.), 42 F.3d 1541, 1548 (9th Cir.1994)). On a claim for fraud, then, a "pleading is sufficient under rule 9(b) if it identifies the circumstancesconstituting fraud so that a defendant can prepare an adequate answer from the allegations." Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989)(citations omitted). "While statements of the time, place and nature of the alleged fraudulent activities are sufficient, mere conclusory allegations of fraud" are not. Id. Further, Rule 9(b) requires a plaintiff to attribute particular fraudulent statements or acts to individual defendants. Id.

The Court concludes that Plaintiffs fail to state a claim for intentional misrepresentation against H&R Block and Wells Fargo. Plaintiffs allege no misrepresentations made by Wells Fargo and the alleged misrepresentations occurred during the loan application and completion process. Wells Fargo is alleged to be the purchaser of the property at the Trustee's Sale. Accordingly, the Court grants Wells Fargo's motion to dismiss Plaintiffs' cause of action for intentional misrepresentation.

Plaintiffs also fail to adequately allege a claim for intentional misrepresentation against H&R Block. Plaintiffs fail to allege their justifiable reliance on a specific misrepresentation, who made such misrepresentations and when such misrepresentations were made. Accordingly, the Court grants H&R Block's motion to dismiss Plaintiffs' first cause of action for intentional misrepresentation.

B. Breach of Fiduciary Duty

Plaintiffs' second cause of action is for breach of fiduciary duty. (Compl. ¶¶ 35-40.) Generally, barring an assumption of duty or a special relationship, "financial institutions owe no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money." Nymark v. Heart Fed. Sav. & Loan Ass'n, 231 Cal.App.3d 1089, 1096 (1991). Although California law imposes a fiduciary duty on a mortgage brokerfor the benefit of the borrower, no such duty is imposed on a lender. UMET Trust v. Santa Monica Med. Inv. Co., 140 Cal.App.3d 864, 872-73 (1983); Price v. Wells Fargo Bank, 213 Cal.App.3d 465, 476 (1989) (citing Downey v. Humphreys, 102 Cal.App.2d 323, 332 (1951)) ("'A debt is not a trust and there is not a fiduciary relation between debtor and creditor as such.' The same principle should apply with even greater clarity to the relationship between a bank and its loan customers."). Because H&R Block as a lender owes no fiduciary duty to Plaintiffs and Wells Fargo as purchaser of the Property at the Trustee's Sales owes no fiduciary duty to Plaintiffs, Plaintiffs' claim for breach of fiduciary duty against H&R Block and Wells Fargo fails as a matter of law. Accordingly, the Court grants Defendants' motions to dismiss Plaintiffs' second cause of action against H&R Block and Wells Fargo with prejudice.

C. Breach of Covenant of Good Faith and Fair Dealing

Plaintiffs' third cause of action is for a breach of the covenant of good faith and fair dealing. (Compl. ¶¶ 41-46.) Plaintiffs allege that "agreements entered into between Plaintiffs and Defendants contained an implicit covenant of good faith and fair dealing requiring defendants to act honestly and in good faith in the performance of the contract(s)." (Id. ¶ 42.) Plaintiffs allege that "[t]he conduct of Defendant in purposefully overstating Plaintiffs' income and failing to disclose material information in the loan application process, constitutes a breach of the covenant." (Id. ¶ 43.)

California recognizes that every contract contains an implied covenant of good faith and fair dealing, "'impos[ing] upon each contracting party the duty to refrain from doing anything which would render performance of the contract impossible by any act of his own, but also the duty to do everything that the contract presupposes that he will do to accomplish its purpose.'" 1 Witkin, Summary of California Law, Contracts § 798 (10th ed. 2005). In order to state a claim for relief on an implied covenant theory, there must first be a contractual relationship between the parties. Id. § 800 (citation omitted). "The essence of the good faith covenant is objectively reasonable conduct." Id. § 801. A breach of the implied covenant of good faith and fair dealing requires something more than a breach of the contractual duty itself. Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal.App.3d 1371, 1394 (1990) (citations omitted). This "implies unfair dealing rather than mistaken judgment." Id.

The Court concludes that Plaintiffs fail to state a claim for breach of the covenant of good faith and fair dealing. Plaintiffs have not alleged any agreement with Wells Fargo or how Wells Fargo has unfairly interfered with Plaintiffs' rights under any alleged contract. Accordingly, the Court grants Wells Fargo's motion to dismiss Plaintiffs' third cause of action. Plaintiffs' claim for breach of the covenant of good faith and fair dealing also fails as to H&R Block. Plaintiffs do not allege what contract was breached. Furthermore, if Plaintiffs' action for breach of the covenant is premised not on a contractual relationship, Plaintiffs may not recover for a breach of an implied covenant, absent a "special relationship" between the borrower and lender that has "fiduciary characteristics." Pension Trust Fund for Operating Engineers v. Federal Ins. Co., 307 F.3d 944, 955 (9th Cir. 2002). Generally a special relationship does not exist between a lender and a borrower and Plaintiffs do not sufficiently ...


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