The opinion of the court was delivered by: M. James Lorenz United States District Court Judge
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS
In this mortgage foreclosure action, Defendant Wells Fargo Home Mortgage, Inc. dba America's Servicing Company filed a motion to dismiss or transfer venue pursuant to Federal Rule of Civil Procedure 12(b)(3), or dismiss for failure to state a claim pursuant to Rule 12(b)(6). Plaintiff filed an opposition and Defendant replied. For reasons stated below, Defendant's motion to dismiss or transfer for improper venue is DENIED and its motion to dismiss for failure to state a claim is GRANTED WITH LEAVE TO AMEND.
Plaintiff alleges that he owns a residence located at 4431 Paola Way in San Diego. (Compl. at 2.) The Property is a single-family residence and Plaintiff's primary residence. (Id. at 4.) In September 2005 Plaintiff refinanced the mortgage on the Property. (Id. at 2, 3.) Defendant is the servicer on Plaintiff's current loan. (See id. at 3.) A notice of default was recorded on August 11, 2008, the Property was sold, and on December 8, 2008 a Trustee's Deed upon Sale was recorded. (Id. at 5 & Ex. 4.) The sale, however, was rescinded and Plaintiff remained the trustor and assessed owner of the Property. (Id. at 5.) On or about April 13, 2009 Defendant entered into the Commitment to Purchase Financial Instrument and Servicer Participation Agreement for the Home Affordable Modification Program under the Emergency Economic Stabilization Act of 2008 ("Agreement") with Federal National Mortgage Association ("Fannie Mae") and agreed to perform certain loan modification and foreclosure prevention services for eligible loans. (Id. at 3-4 & Ex. 1 (Agreement).) On July 17, 2009 Plaintiff came into possession of a copy of an unrecorded Notice of Trustee's Sale with an August 6, 2009 sale
Id. at 5 & Ex. 5), which appears to have prompted the filing of this action.
Plaintiff filed a complaint in San Diego County Superior Court alleging breach of the Agreement on the theory that he is a third-party beneficiary under California Civil Code Section 1559, that his loan was eligible for modification, Defendant refused to offer to modify it under the Agreement, but instead commenced foreclosure proceedings. (See Compl. at 3-5 & Agreement at 1.) Based on breach of contract, he also alleged that Defendant violated the Unfair Competition Law, Cal. Bus. & Prof Code § 17200 et seq. ("UCL"). He seeks damages and declaratory judgment that Defendant does not have the right to foreclose on the Property.
Defendant removed the action to this court based on federal question jurisdiction pursuant to 28 U.S.C. Section 1331 and diversity jurisdiction pursuant to 28 U.S.C. Section 1332, and then filed a motion to dismiss. Defendant claims that under the Agreement's forum selection clause venue is improper in this district and that the complaint fails to state a claim.
Defendant argues that pursuant to the forum selection clause, proper venue lies in the District of Columbia and that the case should either be dismissed of transferred for improper venue. (See Agreement ¶ 11(a).) A motion to dismiss based on a forum selection clause is construed as a Rule 12(b)(3) motion to dismiss for improper venue. Argueta v. Banco Mexicano, , 87 F.3d 320, 324 (9th Cir. 1996). On a Rule 12(b)(3) motion, the allegations in the complaint need not be accepted as true and the court may consider facts outside the complaint. Murphy v. Schneider Nat'l, Inc., 362 F.3d 1133, 1137 (9th Cir. 2004). The court "must draw all reasonable inferences in favor of the non-moving party and resolve all factual conflicts in [his] favor . . .." Id. at 1138.
Federal law governs the enforceability of the forum selection clause. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 590 (1991) (federal question cases); Manetti-Farrow, Inc. v. Gucci Am., Inc., 858 F.2d 509, 513 (9th Cir. 1988) (diversity cases). A forum selection clause may restrict a third-party beneficiary to the selected forum. TAAG Linhas Aereas de Angola v. Transam. Airlines, Inc., 915 F.2d 1351, 1354 (9th Cir. 1990). "[F]orum selection clauses are presumptively valid" and "should be honored absent some compelling and countervailing reason." Murphy, 362 F.3d at 1140, quoting Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972) (internal quotation marks omitted). Three reasons make enforcement of a forum selection clause unreasonable:
(1) if the inclusion of the clause in the agreement was the product of fraud or overreaching; (2) if the party wishing to repudiate the clause would effectively be deprived of his day in court were the clause enforced; and (3) if enforcement would contravene a strong public policy of the forum in which suit is brought.
Id. at 1140 (internal citation and quotation marks omitted).
Plaintiff argues that enforcing the clause would be unreasonable because it would effectively deprive him of his day in court. The court agrees. That Plaintiff is financially distressed is obvious from the nature of this action and Defendant does not dispute it. Where a party's financial circumstance would effectively preclude him from a day in court, enforcing the forum selection clause would be unreasonable. Murphy, 362 F.3d at 1142. Defendant's motion to dismiss or transfer for improper venue is therefore DENIED.
Defendant next maintains that the complaint should be dismissed for failure to state a claim pursuant to Rule 12(b)(6). A Rule 12(b)(6) motion tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule 12(b)(6) where the complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds, ,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. "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. Factual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation marks, brackets and citations omitted). 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. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions, however, 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); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998).
Plaintiff alleged that Defendant breached the Agreement because his loan qualified for loan modification and other conditions for loan modification under the Agreement were met, but Defendant refused to modify the loan and instead commenced foreclosure proceedings. (Compl. at 3-5.) Plaintiff contends that he has a right to enforce the Agreement as a third-party beneficiary. (Compl. at 5-6.) Defendant argues that Plaintiff is not a third-party beneficiary.
Federal law controls the interpretation of a contract entered into pursuant to federal law and to which the United States is a party. County of Santa Clara v. Astra USA, Inc., 588 F.3d 1237, 1243 (9th Cir. 2009), pet. for cert. filed, 78 U.S.L.W. 3644 (U.S. Apr. 21, 2010) (No. 09-1273). The Agreement was entered into between Defendant and Fannie Mae in its capacity as a financial agent of the United States. (See Agreement at 1.) Furthermore, the Agreement provides that it "shall be governed by and construed under Federal law and not the law of any state or locality, without reference to or ...