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Wanda D. Sherman and Randall L. v. Wells Fargo Bank

May 12, 2011



This case was on calendar on April 27, 2011 for argument on defendant Wells Fargo Bank's motions to dismiss and to strike. Jeremy Shulman of Anglin, Flewelling, Rasmussen, Campbell, Trytten LLP appeared telephonically for defendant Wells Fargo Bank. Plaintiffs did not appear.

I. Background

Plaintiffs filed a complaint in Nevada County Superior Court, alleging that in 2006 defendants purchased a single family home at 11620 Red Dog Road in Nevada City from Wachovia Bank; that the deed was later purchased by defendant Wells Fargo Bank; that plaintiffs pursued a loan modification with Wells Fargo through the Home AffordableModification Program (HAMP); that over the course of several months, defendant gave plaintiffs conflicting information about the approval of their modification request; that in February 2010, when plaintiffs called about the modification request, defendant informed them a trustee's sale had been scheduled for that day; that plaintiffs knew nothing about the sale before that time; that plaintiffs contacted defendant Cal-Western and learned that the sale had been postponed until April 2010; that shortly after that, Wells Fargo employee Chelsea informed plaintiffs their loan modification had been approved; that plaintiffs had a series of conflicting phone calls about their modification with defendants' representatives; that after April 30, 2010, Wells Fargo has refused to negotiate with plaintiffs or to offer any solution to foreclosure; and that plaintiffs filed for bankruptcy and the trustee's sale was postponed until October 25, 2010. Compl. (ECF No. 1) at 9-14.*fn1 Plaintiffs allege causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing and fraudulent misrepresentation, and include claims for injunctive and declaratory relief, labeled as separate causes of action.

Defendant Wells Fargo removed the case to this court on January 5, 2011, invoking this court's diversity jurisdiction. See ECF No. 1 at 2-3. Cal-Western Reconveyance joined in the removal. ECF No. 2. On January 26, 2011, Wells Fargo filed the motions currently pending before the court. Plaintiff has opposed the motion to dismiss, but has not addressed the motion to strike.

II. Removal

A case originally filed in state court may be removed to federal court if the underlying complaint raises federal questions or if the parties are citizens of different states and the amount in controversy exceeds $75,000. 28 U.S.C. §§ 1332, 1441, 1446. A court must remand a removed case "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction. . . ." 28 U.S.C. § 1447(c); United Investors Life Ins. Co. v. Waddell & Reed, 360 F.3d 960, 967 (9th Cir. 2004) (court must consider its jurisdiction sua sponte). Because there is a strong presumption against removal jurisdiction, the defendant bears the burden of establishing that removal was proper; all ambiguity is resolved in favor of remand to the state court. Hunter v. Philip Morris USA, 582 F.3d 1039, 1042 (9th Cir. 2009); Hafiz v. Greenpoint Mortgage Funding Inc., 652 F.Supp.2d 1050, 1052 (N.D. Cal. 2009), aff'd, 2010 WL 4146538 (9th Cir. 2010).

Plaintiffs allege that both Wells Fargo and Cal-Western Conveyance are California corporations. Compl. at 9-10. In its notice of removal, Wells Fargo included documentation showing that it is a citizen of South Dakota. ECF No. 1 at 51-56. It acknowledges that defendant Cal-Western Reconveyance Corporation is a California citizen, but urges that the presence of Cal-Western does not defeat diversity because it was fraudulently named and so may be ignored for diversity purposes. ECF No. 1 at 3-5.*fn2

"Fraudulent joinder," a term of art, means that "'plaintiff fails to state a cause of action against a resident defendant, and the failure is obvious according to the settled rules of the state.'" Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1067 (9th Cir. 2001) (quoting McCabe v. General Foods Corp., 811 F.2d 1336, 1339 (9th Cir. 1987)). A defendant who alleges fraudulent joinder must show that the plaintiff has no potentially valid claims against a non-diverse defendant, whether in the complaint as currently constituted or in a potential complaint, amended to cure any deficiency in an inadequately pleaded claim. See Wise v. Suntrust Mortgage, Inc., 2011 WL 1466153, at *3 (N.D. Cal. 2011) (marshalling authorities); Sun v. Bank of America Corporation, 2010 WL 454720, at *3 (C.D. Cal. 2010) (same).

Wells Fargo correctly notes that Cal-Western is the current trustee of the deed of trust, with limited authority under California law. In California, the trustee's duties are limited to those imposed by statute and by the contract, namely to foreclose upon default and to reconvey the deed of trust upon satisfaction of the secured debt; the trustee does not act as a fiduciary, but rather as common agent for the trustor and beneficiary of the deed of trust. Swanson v. EMC Mortgage Corporation, 2009 WL 4884245, at *3-4 (E.D. Cal. 2009). The underlying complaint does not allege that Cal Western violated any statutory or contractual duties it owed to plaintiffs. The only breach of contract claim in the complaint is based on the theory that the plaintiffs were third party beneficiaries of a contract between Wells Fargo and the United States Treasury, which required Wells Fargo to modify qualifying loans under HAMP. See generally Williams v. Geithner, 2009 WL 3757380, at *1-3 (D. Minn. 2009) (discussing HAMP, which grew out of the Emergency Economic Stabilization Act, 12 U.S.C. § 5201, et seq.). The second cause of action, a claimed breach of the implied covenant of good faith and fair dealing, necessarily relies on the existence of a specific contractual obligation, for it is based on a defendant's conscious refusal to discharge contractual obligations, thus depriving a party of the benefits of the agreement. Dooms v. Federal Home Loan Mortgage, 2011 WL 1232989, at *9 (E.D. Cal. 2011). The third and fourth claims are for injunctive and declaratory relief, which are not causes of action but rather must be based on other, viable causes of action. Id. at *23. Finally, the fifth claim is for fraudulent misrepresentation, which requires a showing that a defendant knowingly made a false representation with the intent to defraud, which induced justifiable reliance. The only factual allegation against Cal-Western, however, is that plaintiffs called Cal Western and learned that the trustee's sale had been postponed. Compl. at 12 ¶ 18.

In light of a trustee's limited contractual duties under state law and the trustee's limited involvement as alleged in the complaint, the court finds that Cal-Western was fraudulently joined for diversity purposes.

III. The Motion To Dismiss

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." A court may dismiss "based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Department, 901 F.2d 696, 699 (9th Cir. 1990).

Although a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief" (Fed. R. Civ. P. 8(a)(2)), in order to survive a motion to dismiss this short and plain statement "must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, U.S. , 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something more than "an unadorned, the-defendant-unlawfully-harmed-me accusation" or "'labels and conclusions'" or "'a formulaic recitation of the elements of a cause of action.'" Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss for failure to state a claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S.Ct. at 1950. Ultimately, the inquiry focuses on the interplay between the factual allegations of the complaint and the dispositive issues of law in the action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

In making this context-specific evaluation, this court must construe the complaint in the light most favorable to the plaintiff and accept as true the factual allegations of the complaint. Erickson v. Pardus, 551 U.S. 89, 93-94 (2007). This rule does not apply to "'a legal conclusion couched as a factual allegation,'" Papasan v. Allain, 478 U.S. 265, 286 (1986) (quoted in Twombly, 550 U.S. at 555), nor to "allegations that contradict matters properly subject to judicial notice" or to material attached to or incorporated by reference into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988-89 (9th Cir. 2001). A court'sconsideration of documents attached to a complaint or incorporated by reference or as a matter of judicial notice will not convert a motion to dismiss into a motion for summary judgment. United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003); Parks School of Business v. Symington, 51 F.3d 1480, ...

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