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Dennly R. Becker; the Becker Trust Dated March 25, 1991 v. Wells Fargo Bank

March 21, 2011

DENNLY R. BECKER; THE BECKER TRUST DATED MARCH 25, 1991,
PLAINTIFFS,
v.
WELLS FARGO BANK, N.A., INC.; WACHOVIA MORTGAGE CORPORATION; DOES 1-20,
DEFENDANTS.



The opinion of the court was delivered by: Kendall J. Newman United States Magistrate Judge

ORDER and FINDINGS AND RECOMMENDATIONS

Dennly Becker ("Becker") and the Becker Trust Dated March 25, 1991 ("Becker Trust") (collectively, "plaintiff"*fn1 ), proceeding without counsel in this action, filed a verified First Amended Complaint (the "FAC") on November 29, 2010. (FAC, Dkt. No. 19.)

Currently pending before the undersigned are several motions filed by Defendants Wells Fargo Bank, N.A. ("Wells Fargo"), and Wachovia Mortgage Corporation ("Wachovia") (collectively, the "defendants") attacking that pleading. The pending motions are defendants' jointly-filed Motion to Dismiss (the "MTD") the FAC pursuant to Federal Rule of Civil Procedure 12(b)(6) (Dkt. No. 26), defendants' jointly-filed Motion to Strike plaintiff's pleading (the "MTS") (Dkt. No. 27), and defendants' jointly-filed Request for Judicial Notice (defendants' "RJN") (Dft's RJN, Dkt. No. 28). Plaintiff filed oppositions to the MTD and the MTS. (Dkt. Nos. 41-42.) Plaintiff also filed his own Request for Judicial Notice (plaintiff's "RJN"). (Pltf's RJN, Dkt. No. 43.)*fn2

The court heard oral arguments regarding these motions on its law and motion calendar on March 3, 2011. During that hearing, the undersigned also heard oral arguments on another motion pending in this case.*fn3 Plaintiff, who is proceeding without counsel, appeared on his own behalf. Attorney Gene Wu appeared on behalf of defendants.

The undersigned has considered the briefs, oral arguments, and the record in this case and, for the reasons that follow, orders that defendants' MTD is granted. Several of plaintiff's claims are dismissed without prejudice. Plaintiff shall have the opportunity to file an amended pleading to remedy those deficient claims in accordance with the terms of this order. The undersigned also recommends that several of plaintiff's claims be dismissed with prejudice.

The undersigned also orders that defendants' MTS is denied and that defendant's RJN is denied in part and granted in part. The undersigned orders that plaintiff's RJN is denied.

I. BACKGROUND

A. Procedural History

On September 15, 2010, plaintiff filed a complaint against the named defendants and twenty Doe defendants in state court. (Dkt. No. 1-1.) This complaint concerned plaintiff's loans on nine residential properties. On October 15, 2010, Wells Fargo and Wachovia removed this action to federal court. (Dkt. No. 1.) On October 27, 2010, defendants moved to dismiss plaintiff's complaint. (Dkt. No. 11.)

Defendants' prior motion to dismiss was dismissed as moot, because on November 4, 2010, plaintiff requested leave to file a first supplemental complaint pursuant to Fed. R. Civ. P. 15(d) and attached his proposed supplemental complaint to the motion. (Dkt. No. 13.) On November 12, 2010, the undersigned denied plaintiff's motion on the ground that Fed. R. Civ. P. 15(d) is not the proper section of the rule from which plaintiff may amend his complaint and instructed plaintiff to file and serve a first amended complaint on or before December 10, 2010, pursuant to Fed. R. Civ. P. 15(a). (Dkt. No. 15.) The undersigned therefore denied defendants' motion to dismiss without prejudice as moot. (Id.)

On November 29, 2010, plaintiff filed his verified FAC. (FAC, Dkt. No. 19.) In the interim, plaintiff filed a motion for a preliminary injunction and the motion was granted.*fn4

Plaintiff and defendants entered into a stipulation to extend time for defendants to respond to the FAC. (Dkt. No. 22.)

On January 13, 2011, defendants filed their MTD, MTS, and RJN and set those motions to be heard on February 17, 2011. (Dkt. Nos. 26-28.) On January 28, plaintiff filed an ex parte application for an order continuing that hearing to permit him more time to prepare oppositions to defendants' motions. (Dkt. No. 38.) The undersigned continued the hearing for 14 days and reset the hearing date as March 3, 2011 and required plaintiff to file his oppositions by February 17, 2011. (Dkt. No. 39.)

On February 16, 2011, plaintiff filed an opposition to the MTD ("Oppo."). (Oppo., Dkt. No. 41.) That same day, plaintiff filed an opposition to the MTS. (Dkt. No. 42.) Plaintiff also filed his own RJN. (Pltf's RJN, Dkt. No. 43.) Defendants filed a reply in support of their MTD (the "Reply"). (Reply, Dkt. No. 44.) Defendants also filed a reply in support of their MTS. (Dkt. No. 45.) As described above, the undersigned heard oral arguments on the motions on March 3, 2011. (Dkt. No. 47.)

B. Plaintiff's allegations

The FAC is one hundred and thirteen pages long, contains numerous allegations and enumerates causes of action for: (1) fraud; (2) violation of the Consumer Legal Remedies Act, California Civil Code §§ 1750 et seq.; (3) violation of the Unfair Competition Law, California Business and Professions Code §§ 17200 et seq.; (4) False Advertising; California Business and Professions Code §§ 17500 et seq.; (5) violation of California Civil Code § 2943; (6) wrongful foreclosure proceedings; (7) quiet title; (8) unfair debt collection practices (state and federal law); (9) Racketeer Influenced and Corrupt Organizations ("RICO") violations; (10) negligent misrepresentation and negligence. (FAC at pp. 56-103.)

The following recitation of "facts" are all based upon allegations in plaintiff's FAC. Plaintiff's claims arise from his nine residential investment properties and loans secured by those properties. Plaintiff alleges that he obtained mortgages on these properties with Wachovia's predecessor and that Wachovia and Wells Fargo now service and "claim[] to own" his mortgages. (Id. ¶¶ 21-22.)

After he lost his job, plaintiff became unable to afford mortgage payments and decided to stop making mortgage payments on his investment Shelborne property. (Id. ¶¶ 24, 28.) On October 1, 2009, plaintiff stopped making his mortgage payments on the Shelborne property. (Id. ¶ 28.) Later that month, plaintiff was contacted by one of defendants' employees, who, he alleges, referred him to the loan counseling department to discuss loan modification. (Id. ¶ 29.) In early November 2009, defendants' employee Carl Saris ("Saris") asked plaintiff whether he could afford his payments on this loan and the Third Street and Larkflower property loans if they were reduced by $500. (Id. ¶ 31.) Plaintiff told Saris that he could make those reduced payments effective immediately. (Id.) Saris allegedly told plaintiff that his loans "could all be modified to lower the monthly payments for each by $500 per month. Mr. Saris then verbally gave the plaintiff a list of documents that plaintiff would have to provide to WACHOVIA to receive the loan modifications. Mr. Saris stated that once the documentation was received, the modification could be processed quickly." (Id. ¶ 31.)

Plaintiff gathered and sent his financial documents in reliance on Saris's representation that the loans "could all be modified" and "processed quickly." (Id. ¶ 32.) But later that month, defendants informed plaintiff that his loans would not be modified. (Id. ¶ 35.) Thereafter, plaintiff continued to participate in the modification application process and continued to send requested documents, but no modification ever occurred.

While plaintiff participated in the drawn-out application process, he failed to make payments on his Shelborne property and defendants took steps to foreclose upon it. (Id. ¶ 39.) These foreclosure actions allegedly damaged plaintiff's credit score, and caused plaintiff to "lose credit worth $76,000." (Id. ¶ 213.) Plaintiff also alleges that he "intended to request loan modifications from" other financial institutions for seven of his other investment properties after obtaining the modifications that defendants represented "would occur quickly," but as the modifications never came, he never requested modifications from other financial institutions. (Id. ¶ 214.)

In December 2009, defendants notified plaintiff that foreclosure proceedings would commence upon the Shelborne property. (Id. ¶ 39.) In January 2010, defendants requested that plaintiff provide information required for a potential modification of the loan on the Shelborne property. (Id. ¶ 54.) Plaintiff, at the time already engaged in frequent communications with defendants' agents concerning the status of the loan modification request on the Shelborne property, again provided documents to support the request. (Id. ¶¶ 57-86.)

In April 2010, plaintiff decided to cease making payments on the Third Street and Larkflower properties. (Id. ¶ 87.) He then requested loan modifications on all of his loans, including the six for which he was still making payments. (Id. ¶ 88.) Later that month, plaintiff was informed that his request for the loan modification on the Shelborne property was denied because he was not an owner-resident. (Id. ¶ 92.) The next day, plaintiff received a written Forbearance Agreement (the "Forbearance Agreement"), which stated: "The purpose of this Agreement is to determine Borrower's capacity and willingness to make monthly mortgage payments. Upon completion of the payments referenced in this Agreement, Borrower will be required to (1) move forward with any necessary actions to result in payoff of the loan, (2) fully reinstate the loan and/or cure the default, or (3) you may choose to apply for a permanent modification." (Id. ¶ 93.) The Forbearance Agreement required plaintiff to make three monthly payments, starting in June 2010, that were $360 more than the amount to which Saris had represented that plaintiff's loan would be modified. (Id.) Plaintiff then engaged in numerous communications with defendants' agents in which he tried to determine whether it was necessary for him to enter the Forbearance Agreement and the status of his requests for loan modification. (Id. ¶¶ 94-101.) He received some conflicting and otherwise confusing information, and defendants' agents failed to respond to some of his communications. (Id.)

In May 2010, plaintiff received a letter from defendants indicating that his loan modification file had been closed due to non-receipt of documentation and information. (Id. ¶ 102.) The letter indicated that defendants intended to move forward with collection efforts. (Id.) Plaintiff alleges that after reading the letter and learning that defendants were indeed "proceeding with foreclosure," plaintiff signed the Forbearance Agreement. (Id. ¶¶ 103, 216.)

He alleges, "since WACHOVIA was continually threatening to foreclose on the Shelborne property, plaintiff decided to make the [forbearance] payments believing that after the final payment WACHOVIA would honor its initial commitment to lower the Shelborne payment by $500 per month." (Id. ¶¶ 104, 217.)

When plaintiff returned the signed Forbearance Agreement to defendants, he also included a letter to defendants in which he expressed his belief that defendants were engaging in unfair business practices because they denied his request for a loan modification even though he adjusted his income to the levels Wachovia's agents indicated would be necessary to qualify for the modification. (Id.) The Forbearance Agreement was subsequently approved by defendants. (Id. ¶ 106.) Around the same time, plaintiff received a letter from defendants' "Executive Mortgage Specialist," Kevin Kreis ("Kreis") informing plaintiff that he was not entitled to any in-house loan modification programs on the Shelborne property because he was not an owner-resident. (Id. ¶¶ 107, 219.) Plaintiff was surprised by this letter because defendants had advised him to apply for loan modifications and because through all of his communications with defendants about loan modification he was never informed that he could not qualify, but rather that he should provide proper documentation and adjust his income to qualify. (Id.)

Later in May 2010, plaintiff received notices of intent to foreclose on the Third Street and Larkflower properties. (Id. ¶ 112.) The notices included information on loan modification. (Id.) He subsequently received three more letters from defendants encouraging him to seek loan modification on those properties. (Id. ¶¶ 113-15.) In June 2010, plaintiff sent defendants a request for loan modification on the Third Street and Larkflower properties along with documentary support of his current income. (Id. ¶ 116.) Several weeks later, plaintiff was informed by defendants that the mortgages on the Third Street and Larkflower properties would not be modified. (Id. ¶¶ 124-25.) Defendants indicated that they intended to commence foreclosure upon these properties as well. (Id. ¶ 125.)

Plaintiff made payments under the Forbearance Agreement (Id. ¶¶ 109, 119, 132 (final payment made July 15, 2010).) According to the terms of the Forbearance Agreement, the payments were due on June 1, 2010, July 1, 2010, and August 1, 2010, but plaintiff made these payments early. (Id. ¶ 93.) He sent the final payment on July 15, 2010. (Id. ¶ 132.)

Following plaintiff's third and final payment made under the Forbearance Agreement, plaintiff received a letter thanking him for his participation and informing him that he "could now apply for a permanent loan modification." (Id. ¶¶ 134, 226.) Thereafter, plaintiff received a Notice of Intent to Foreclose upon the Shelborne property. (Id. ¶ 142.) That Notice was dated July 22, 2010, and it demanded payment of $18,045.79 by August 21, 2010, to prevent foreclosure. (Id. ¶¶ 141-42.)

Plaintiff appears to suggest that the July 22, 2010 Notice was a violation of the Forbearance Agreement, but plaintiff does not formally plead a breach of contract. He alleges that he found the July 22, 2010 Notice of Intent to Foreclose confusing because "plaintiff had paid the amounts required under the April 26, 2010 Forbearance Agreement. The amounts paid under the agreement were for June, July, and August . . . Plaintiff had made all payments through August, it was not yet August and WACHOVIA was threatening to foreclose before the end of August." (Id. ¶ 142.)

Plaintiff also alleges that during multiple conversations during the modification application process, he was told he did not qualify for modification because his income was too low. For instance, defendants' representative "Teo" allegedly told plaintiff that the loan modification for Shelborne "was not approved because plaintiff's income was too low" and that, in response to plaintiff's statement that "he could take money out of his Individual Retirement Account (IRA)" to raise his income, Teo "told Plaintiff to reapply for the loan modification when he had proof of his IRA income." (Id. ¶ 42.) Plaintiff alleges that, to try to correct for this shortcoming in his modification package, plaintiff made an early withdrawal on his IRA retirement funds (such that he was taxed) to raise his income. Plaintiff alleges that "based on Teo's representation" (id. ¶ 191) and "because of Teo's statement [that plaintiff's income was "too low"], plaintiff began withdrawing $2000 per month from his IRA." (Id. ¶ 101.) On reapplying for modification, however, he was told his income was too high. (Id. ¶¶ 190-91.)

II. LEGAL STANDARDS

A. Motion to Dismiss

A motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the sufficiency of the pleadings set forth in the complaint. Vega v. JP Morgan Chase Bank, N.A., 654 F. Supp. 2d 1104, 1109 (E.D. Cal. 2009). Under the "notice pleading" standard of the Federal Rules of Civil Procedure, a plaintiff's complaint must provide, in part, a "short and plain statement" of plaintiff's claims showing entitlement to relief. Fed. R. Civ. P. 8(a)(2); see also Paulsen v. CNF, Inc., 559 F.3d 1061, 1071 (9th Cir. 2009). "A complaint may survive a motion to dismiss if, taking all well-pleaded factual allegations as true, it contains 'enough facts to state a claim to relief that is plausible on its face.'" Coto Settlement v. Eisenberg, 593 F.3d 1031, 1034 (9th Cir. 2010) (quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)). "'A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Caviness v. Horizon Cmty. Learning Ctr., Inc., 590 F.3d 806, 812 (9th Cir. 2010) (quoting Iqbal, 129 S. Ct. at 1949). The court accepts all of the facts alleged in the complaint as true and construes them in the light most favorable to the plaintiff. Corrie v. Caterpillar, 503 F.3d 974, 977 (9th Cir. 2007). The court is "not, however, required to accept as true conclusory allegations that are contradicted by documents referred to in the complaint, and [the court does] not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Paulsen, 559 F.3d at 1071 (citations and quotation marks omitted).

The court must construe a pro se pleading liberally to determine if it states a claim and, prior to dismissal, tell a plaintiff of deficiencies in his complaint and give plaintiff an opportunity to cure them if it appears at all possible that the plaintiff can correct the defect. See Lopez v. Smith, 203 F.3d 1122, 1130-31 (9th Cir. 2000) (en banc); see also Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990) (stating that "pro se pleadings are liberally construed, particularly where civil rights claims are involved"). In ruling on a motion to dismiss pursuant to Rule 12(b), the court "may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice." Outdoor Media Group, Inc. v. City of Beaumont, 506 F.3d 895, 899 (9th Cir. 2007) (citation and quotation marks omitted).

B. Motion to Strike

Rule 12(f) of the Federal Rules of Civil Procedure states that a court "may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." "Motions to strike are disfavored, and the remedy of striking a pleading should generally be used only when necessary to discourage parties from raising allegations that are completely unrelated to the relevant claims and when the interests of justice so require." Serpa v. SBC Telecomms., Inc., No. C 03-4223 MHP, 2004 WL 2002444, at *3 (N.D. Cal. Sept. 7, 2004) (unpublished) (citing Augustus v. Board of Pub. Instruction, 306 F.2d 862, 868 (5th Cir. 1962)); see also Fogerty v. Fantasy, Inc., 984 F.3d 1524, 1527 (9th Cir. 1993), rev'd on other grounds by Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994) ("The function of a 12(f) motion to strike is to avoid the expenditure of time and money that must arise from litigating spurious issues by dispensing with those issues prior to trial . . . .")

"Rule 12(f) does not authorize a district court to strike a claim for damages on the ground that such damages are precluded as a matter of law." Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 971 (9th Cir. 2010). The court noted that courts may not resolve disputed and substantial factual or legal issues in deciding a motion to strike. Id. at 973. "Motions to strike are generally not granted unless it is clear that the matter to be stricken could have no possible bearing on the subject matter of the litigation." LeDuc v. Kentucky Cent. Life Ins. Co., 814 F. Supp. 820, 830 (N.D. Cal. 1992). Granting a motion to strike may be proper if it will make trial less complicated or eliminate serious risks of prejudice to the moving party, delay, or confusion of the issues. Fantasy, 984 F.2d at 1527-28; Travelers Cas. and Sur. Co. of America v. Dunmore, No. CIV. S-07-2493 LKK-DAD, 2010 WL 5200940, at *3 (E.D. Cal. Dec. 15, 2010) (unpublished) (same). As the moving party, defendant bears the burden on its motion to strike and the standard for granting such a motion is high. Willis v. Mullins, No. CIV-F-04-6542 AWI LJO, 2006 WL 2792857, at *1 (E.D. Cal. Sept. 28, 2006) (unpublished).

C. Request for Judicial Notice

In ruling on a motion to dismiss, the court may consider matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. E.g., Isuzu Motors Ltd. v. Consumers Union of U.S., Inc., 12 F. Supp. 2d 1035, 1042 (C.D. Cal. 1998). Rule 201 permits a court to take judicial notice of an adjudicative fact "not subject to reasonable dispute" because the fact is either: "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b). The court can also take judicial notice of matters of public record, such as pleadings in another action and records and reports of administrative bodies. Emrich v. Touche Ross & Co., 846 F.2d 1190 (9th Cir. 1988).

III. DISCUSSION

A. Defendants' Motion to Dismiss

1. Fraud Claim

Defendants argue that plaintiff's first claim for fraud should be dismissed for several reasons: (1) as pleaded, the fraud claim is preempted by Home Owners Loan Act ("HOLA") (12 U.S.C. § 1463(a), § 1464(a); 12 C.F.R. § 560.2) (MTD at 5-6), (2) the alleged promise did not create a duty to modify plaintiff's loan (MTD at 9-10), (3) the alleged promise depends on an oral agreement barred by the statute of frauds and lacks new consideration (MTD at 10-11), (4) a breach of an alleged agreement to modify a loan does not amount to fraud (MTD at 12), (5) plaintiff fails to identify individuals who made promises without the intent to perform and therefore fails to plead the elements of fraud with specificity (MTD at 12-13), and (6) the alleged promise was a statement of future events and is an opinion rather than actionable fraud (MTD at 13-14.) Some of defendants' arguments are well-taken, and accordingly, for the reasons stated below, plaintiff's fraud claim is dismissed. Plaintiff shall have the opportunity to amend his pleading to plead facts supporting each element of fraud, with particularity.

i) HOLA and Plaintiff's Fraud Claim

Defendants argue that the various statutory and common law claims plaintiff alleges are preempted by HOLA. Plaintiff has not disputed that defendants are lenders embraced by HOLA. Some of defendants' arguments are well-taken. While defendants are correct that HOLA preempts some of plaintiff's claims, however, the undersigned cannot conclude at this time that HOLA preempts all aspects of plaintiff's fraud claim.

Pursuant to HOLA, the Office of Thrift Supervision ("OTS") was granted the power, "under such regulations as [it] may prescribe -- to provide for the organization, incorporation, examination, operation, and regulation of . . . Federal savings associations. . . ." 12 U.S.C. § 1464(a). The OTS is thus authorized "to prescribe a nationwide system of operation, supervision, and regulation which would apply to all federal associations." Glendale Fed. Sav. & Loan Ass'n v. Fox, 459 F. Supp. 903, 909 (C.D. Cal. 1978). The OTS regulations are "preemptive of any state law purporting to address the subject of the operations of a federal savings association." 12 C.F.R. § 545.2. The "OTS hereby occupies the entire field of lending regulation for federal savings associations." and a federal savings bank, "may extend credit as authorized under federal law, including this part, without regard to state laws purporting to regulate or otherwise affect their credit activities." 12 C.F.R. § 560.2(a).

The Ninth Circuit Court of Appeals has "described HOLA and its following agency regulations as . so pervasive as to leave no room for state regulatory control. [B]ecause there has been a history of significant federal presence in national banking, the presumption against preemption of state law is ...


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