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Rafael Valtierra v. Wells Fargo Bank

February 8, 2011



Defendant has filed motions to dismiss Plaintiff's first amended complaint for failure to state a claim and to strike portions of the complaint. Plaintiff opposes the motion to dismiss. Based on the analysis contained herein, the motion to dismiss is granted with leave to amend. As the complaint is being dismissed, no consideration of the motion to strike is necessary.

I. History*fn1

On June 21, 2006, Plaintiff Rafael Valtierra and his wife, Ofelia Valtierra, obtained a $488,000 mortgage from World Savings Bank, FSB ("World Savings") which through a number of corporate changes has become Defendant Wells Fargo Bank, N.A. ("Wells Fargo"). The loan was secured by a Deed of Trust against 1921 Katherine Court, Turlock, CA, which was recorded on July 5, 2006. The Deed of Trust named Plaintiff and Ofelia Valtierra as trustors, World Savings as beneficiary, and third party Golden West Savings Association Services Company as trustee. Plaintiff fell behind on payments, and a Notice of Default was recorded on August 3, 2009 by third party Cal-Western Reconveyance Corporation ("Cal-Western"). A Notice of Trustee Sale was recorded on November 5, 2009 setting a public auction for November 24, 2009; this document named Cal-Western as the trustee. The sale took place on March 8, 2010. Wells Fargo was the high bidder at $327,930.00; the outstanding amount Plaintiff owed on the mortgage had ballooned to $559,109.93. A Trustee's Deed upon Sale was recorded on March 16, 2010, in which Cal-Western conveyed the property to Wells Fargo. At an unspecified date, Wells Fargo sent Plaintiff written notice of a program whereby Plaintiff had until April 30, 2010 to conduct a short sale. It is unclear what communications occurred between the parties concerning this program prior to the trustee sale.

In the present case, Plaintiff Rafael Valtierra (represented by counsel) filed suit against Wells Fargo on April 13, 2010 in Stanislaus County Superior Court. Wells Fargo removed the case to federal district court based on diversity jurisdiction on May 14, 2010. The present complaint is the First Amended Complaint ("FAC") which lists seven causes of action: 1) general violations of Cal. Bus. & Prof. Code §17200, 2) fraud by representing that Plaintiff had until April 30, 2010 to conduct a short sale, 3) to set aside a trustee's deed, 4) wrongful foreclosure, 5) violation of the Truth In Lending Act ("TILA"), 6) fraud by initially overestimating the value of the property, and 7) violation of Cal Bus. & Prof. Code §17200 by initially overestimating the value of the property. Doc. 10. Wells Fargo has filed a motion to dismiss for failure to state a claim and a motion to strike. Docs. 12 and 13. Plaintiff has filed an opposition. Doc. 17. The matter was taken under submission without oral argument.

In a separate but related matter, Wells Fargo filed a suit against Rafael and Ofelia Valtierra on April 2, 2010 in Stanislaus County Superior Court for unlawful detainer of the property. The Stanislaus County Superior Court granted summary judgment in favor of Wells Fargo on June 24, 2010. Rafael and Ofelia Valtierra received an order to stay eviction proceedings on July 14, 2010. The Stanislaus County Sheriff evicted Rafael and Ofelia Valtierra on August 17, 2010. Rafael Valtierra filed a notice of removal on August 11, 2010. However, no notice of removal was filed in federal district court. Instead, Rafael and Ofelia Valtierra (proceeding pro se) filed a new complaint in federal district court (Civ. Case. No. 10-1455) against Wells Fargo and Cal-Western, claiming violations of the Fair Debt Collection Practices Act and Fair Credit Reporting Act, alleging they reported erroneous information to credit reporting agencies. Wells Fargo has filed a motion to dismiss in that case. It does not appear that Cal-Western has been served with a summons in that case.

II. Legal Standards

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "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, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)....a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007), citations omitted. "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss. Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it has not shown that the pleader is entitled to relief." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009), citations omitted. The court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The court must also assume that "general allegations embrace those specific facts that are necessary to support the claim." Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 889 (1990), citing Conley v. Gibson, 355 U.S. 41, 47 (1957), overruled on other grounds at 127 S. Ct. 1955, 1969. Thus, the determinative question is whether there is any set of "facts that could be proved consistent with the allegations of the complaint" that would entitle plaintiff to some relief. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). At the other bound, courts will not assume that plaintiffs "can prove facts which [they have] not alleged, or that the defendants have violated...laws in ways that have not been alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983).

In deciding whether to dismiss a claim under Fed. Rule Civ. Proc. 12(b)(6), the Court is generally limited to reviewing only the complaint. "There are, however, two exceptions....First, a court may consider material which is properly submitted as part of the complaint on a motion to dismiss...If the documents are not physically attached to the complaint, they may be considered if the documents' authenticity is not contested and the plaintiff's complaint necessarily relies on them. Second, under Fed. Rule Evid. 201, a court may take judicial notice of matters of public record." Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001), citations omitted. The Ninth Circuit later gave a separate definition of "the 'incorporation by reference' doctrine, which permits us to take into account documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the plaintiff's pleading." Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005), citations omitted. "[A] court may not look beyond the complaint to a plaintiff's moving papers, such as a memorandum in opposition to a defendant's motion to dismiss. Facts raised for the first time in opposition papers should be considered by the court in determining whether to grant leave to amend or to dismiss the complaint with or without prejudice." Broam v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir. 2003), citations omitted.

If a Fed. Rule Civ. Proc. 12(b)(6) motion to dismiss is granted, claims may be dismissed with or without prejudice, and with or without leave to amend. "[A] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc), quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995). In other words, leave to amend need not be granted when amendment would be futile. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).

III. Discussion

A. HOLA Preemption

Wells Fargo argues that all claims are preempted by the federal Home Owners' Loan Act ("HOLA"). Federal savings associations, including federal savings banks, are regulated by the Office of Thrift Supervision ("OTS") and subject to HOLA, which broadly preempts large swathes of state law. "Congress has legislated in the field of banking from the days of M'Culloch v. Maryland, creating an extensive federal statutory and regulatory scheme. Specific to this case, Congress enacted the Home Owners' Loan Act of 1933 to charter savings associations under federal law, at a time when record numbers of home loans were in default and a staggering number of state-chartered savings associations were insolvent. HOLA was designed to restore public confidence by creating a nationwide system of federal savings and loan associations to be centrally regulated according to nationwide best practices. We have described HOLA and its following agency regulations as a radical and comprehensive response to the inadequacies of the existing state system, and so pervasive as to leave no room for state regulatory control." Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004 (9th Cir. 2008), citations and quotations omitted. 12 C.F.R. §560.2(a) states, "OTS hereby occupies the entire field of lending regulation for federal savings associations. OTS intends to give federal savings associations maximum flexibility to exercise their lending powers in accordance with a uniform federal scheme of regulation."

The preliminary question is whether Wells Fargo has established it is an entity regulated by OTS and covered by HOLA. Wells Fargo has submitted a number of documents which support judicial notice of certain facts under Fed. Rule Evid. 201. See Doc. 14, Exs. A-D. World Savings, which changed its name to Wachovia Mortgage, FSB on December 31, 2007, was a federal savings bank subject to HOLA. Doc. 14, Exs. A-C. However, that entity converted itself to a national bank and merged with Wells Fargo on November 1, 2009. Doc. 14, Ex. D. Wells Fargo has provided no support for the contention that the new merged entity is still covered by HOLA. Wells Fargo does not state that it is currently overseen by the OTS. Case law on this matter is mixed. A number of cases apply HOLA without analyzing its applicability to Wells Fargo or simply noting that a plaintiff does not challenge the issue. See Giordano v. Wachovia Mortgage, FSB, 2010 U.S. Dist. LEXIS 136284 (N.D. Cal. Dec. 14, 2010); Amaral v. Wachovia Mortg. Corp., 692 F. Supp. 2d 1226, 1236 n.4 (E.D. Cal. 2010). At least one case has questioned whether HOLA preemption applies. See Briosos v. Wells Fargo Bank, 2010 U.S. Dist. LEXIS 134995, *39-40 n.11 (N.D. Cal. Dec. 18, 2010).

Other cases have looked to see whether the alleged violations took place when the banking entity was covered by HOLA. "Wells Fargo's acquisition of World Savings Bank, FSB does not affect the HOLA preemption defense because the Complaint only addresses the transaction between Plaintiffs and World Savings Bank, FSB. Moreover, Plaintiffs do not dispute that at the time of the loan, World Savings Bank, FSB was a federally chartered savings association, called a federal savings bank." Taguinod v. World Sav. Bank, FSB, 2010 U.S. Dist. LEXIS 127677, *5 (C.D. Cal. Dec. 2, 2010). "Plaintiff argues that HOLA does not apply to this case because the only surviving Bank Defendant is Wells Fargo, a federally chartered bank not subject HOLA. However, Plaintiff's loan originated with World Savings Bank, which was a federal savings bank subject to HOLA and OTS regulations. World Savings Bank later changed its name to Wachovia Mortgage, FSB, remaining under the regulatory authority of OTS and subject to HOLA. Wachovia Mortgage is now a division of Wells Fargo. Thus, although Wells Fargo itself is not subject to HOLA and OTS regulations, this action is nonetheless governed by HOLA because Plaintiff's loan originated with a ...

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