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Title: Miguel & Oralia Arroyo v. Aurora Bank

February 24, 2012

TITLE: MIGUEL & ORALIA ARROYO
v.
AURORA BANK, FSB & AURORA LOAN SERVICES,



The opinion of the court was delivered by: The Honorable David O. Carter, Judge

CIVIL MINUTES - GENERAL

Julie Barrera Not Present Courtroom Clerk Court Reporter

ATTORNEYS PRESENT FOR PLAINTIFFS: ATTORNEYS PRESENT FOR DEFENDANTS: NONE PRESENT NONE PRESENT

PROCEEDING (IN CHAMBERS): ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

Before the Court is Defendants Aurora Bank, FSB and Aurora Loan Services, LLC's Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6). ("Mot.") (Dkt. 11). The Court finds this matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; Local Rule 7-15. The Court has considered the moving, opposing, and replying papers, and hereby GRANTS in part and DENIES in part Defendants' Motion to Dismiss.

I. BACKGROUND

Taken as true and in the light most favorable to Plaintiffs, the facts alleged by Miguel and Oralia Arroyo (the "Arroyos" or "Plaintiffs") are as follows:

A. CONDUCT PRIOR TO SIGNING THE WORKOUT AGREEMENT

In April 2007, Plaintiffs Miguel and Oralia Arroyo became indebted to Universal American Mortgage Company of California in the amount of $584,250 as a result of the Arroyos' purchase of a home. Compl. ¶ 9, Notice of Removal Ex. A (Dkt. 1). The mortgage was secured by a deed of trust recorded on the property. Id. At some point in time unknown, Aurora became the servicer for the mortgage and began collecting the Arroyos' payments.*fn1 Id. ¶ 10. Plaintiffs fell behind in their payments, and, on April 16, 2009, Aurora began foreclosure proceedings against the property by filing a Notice of Default. Id. ¶ 11. Initial attempts in July 2009 to receive a loan modification failed when the Arroyos made several payments under an oral agreement but Aurora never rendered a decision on the Arroyos' modification request. Id. ¶¶ 12-15.

B. THE WORKOUT AGREEMENT AND CONDUCT UNTIL DECEMBER 13, 2010

On June 22, 2010, the Arroyos entered into a forbearance agreement with Aurora (the "Workout Agreement"). Id. ¶ 16. The Workout Agreement arose from a forbearance request by the Arroyos and forms the crux of their dispute with Aurora; it is attached to their complaint.*fn2 See Compl. Ex. A (the "Workout Agreement"), Notice of Removal Ex. A. The Arroyos do not identify any discussions with Aurora immediately prior to signing the agreement. The Workout Agreement specifies that the Arroyos would make six payments on the first of each month, starting with July 1,

Id. at 8 ¶ a.1. In exchange for these payments, Aurora would refrain from initiating foreclosure proceedings during the term of the Workout Agreement. Id. at 2; see also id. at 4 ¶ 3. The Arroyos acknowledged that this would be Aurora's consideration for the Workout Agreement. Id. at 2. The Workout Agreement would "expire on the Due Date of the Sixth Plan payment;" the due date for that sixth payment was December 1, 2010. Id. at 8 ¶ a.2; see also id. at 8 ¶ a.1; 4 ¶ 2.

The Arroyos acknowledged that upon expiration of the Workout Agreement, the Arroyos would still be in default and would still need to find a way to repay their accumulated arrearage. Id. at 3; 5 ¶ 8; and 9 ¶ b. Because the account would remain delinquent, the Workout Agreement makes clear that upon its conclusion the Arroyos would need to "cure the Arrearage through a full reinstatement, payment in full, loan modification agreement or other loan workout option that [Aurora] may offer."

The Workout Agreement does not guarantee which particular "cure" method listed in the Agreement the Arroyos would be afforded, only that the Arroyos would need to pursue one of them in order to cure the arrearage. Id. Failure to cure the arrearage through one of the specified methods upon expiration of the Workout Agreement would allow Aurora to resume foreclosure proceedings. Id. Tender of the final payment by the Arroyos would not constitute acceptance on Aurora's part of a loan modification or other workout plan. Id. at 9 ¶ a.2.

The Workout Agreement contemplates considering the Arroyos for a loan modification, even if it does not promise to actually offer them one. The Workout Agreement states that after making the second payment under the plan (the August 1, 2010, payment), "it shall be the [Arroyos] responsibility to provide [Aurora] with accurate and complete financial information in support of the [Arroyos'] request for a loan modification or other workout option." Id. at 8 ¶ a.2.The Arroyos made their first two payments under the Workout Agreement. Compl. ¶ 21. Aurora then sent them a letter dated August 18, 2010 (the "August 18 Letter"), stating "we would like to offer you a more permanent foreclosure alternative option." See Compl. Ex. B (the "August 18 Letter") at 22, Notice of Removal

The August 18 Letter made several pertinent statements. It requested a multitude of documents so that Aurora could "review your loan for a more permanent option." Id. at 22.*fn3 The August 18 Letter does not name which "more permanent option" Aurora wanted to offer. However, it does state that "You may be required to complete a repayment plan prior to modification of your loan" and "You will be expected to pay a loan modification fee." Id. at 23. The August 18 Letter also states that Aurora could not review the Arroyos' file without the requested documents, and that once all documents were received and reviewed, Aurora "will advise you of [Aurora's] decision." Id. at 22-23. If any documents were missing, Aurora would send Plaintiffs a "missing items letter" requesting the missing documents. Id. at 23. The Arroyos sent Aurora the documents requested in the August 18 Letter within the proper time frame. Compl. ¶ 29. The Arroyos then made three more (September, October, and November) of their six scheduled payments; Aurora accepted each. Id. ¶ 21.

C. THE DECEMBER 13, 2010, PHONE CALL

According to Plaintiffs, on December 13, 2010, a phone call took place between Aurora and the Arroyos. Id. ¶ 30. During this conversation Aurora apparently "rescinded" the Workout Agreement because Aurora claimed Plaintiffs had not submitted the requested documentation. Id. Plaintiffs contend that they submitted the required documents in a timely fashion. Id. ¶¶ 29-30. Because the Workout Agreement was "rescinded," Aurora told the Arroyos that their sixth payment under the Workout Agreement was "excused." Id. ¶ 22. The complaint does not acknowledge receipt by the Arroyos of a "missing items letter" before this phone call.

D. CONDUCT SUBSEQUENT TO THE DECEMBER 13, 2010, PHONE CALL

On January 13, 2011, Aurora again began foreclosure proceedings against the Arroyos' home, scheduling the sale for February 7, 2011. Id. ¶ 32. However, five days later on January 18, Aurora requested documents from the Arroyos "[i]n order to once again attempt to evaluate Plaintiff's permanent loan modification . . . ." Id. ¶ 33. This began a long process, stretching to the filing of the present complaint, whereby Aurora would request documents, the Arroyos would send in those documents through a law firm they hired, and Aurora would then either lose the documents or request additional ones. See id. ¶¶ 33-59. During this time period Aurora thrice "closed" the Arroyos' file for a lack of documentation, even though Plaintiffs allegedly complied with Aurora's multiple document requests in a timely fashion in all but one instance. Id. ¶¶ 40, 51, 59. The foreclosure sale of Plaintiffs' home was postponed many times as well. See id. ¶¶ 33-59. As of the filing of the complaint Aurora had closed the Arroyos' file for a lack of documentation and scheduled a foreclosure sale.*fn4 Id. ¶¶ 54, 59. Aurora never gave the Arroyos a yes or no answer on their request for a loan modification.

Based on this conduct, Plaintiffs now bring seven causes of action against Defendants. They seek rescission of the Workout Agreement under Cal. Civ. Code § 1689 based on either: (1) improper consent or (2) failure of consideration. They also assert claims of: (3) negligent misrepresentation; (4) unjust enrichment; (5) breach of contract; (6) breach of the implied covenant of good faith and fair dealing; and (7) violation of California's Unfair Competition Law, California Business and Professions Code Section 17200.

II. LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed when a plaintiff's allegations fail to state a claim upon which relief can be granted. Dismissal for failure to state a claim does not require the appearance, beyond a doubt, that the plaintiff can prove "no set of facts" in support of its claim that would entitle it to relief. Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1968 (2007) (abrogating Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99 (1957)). In order for a complaint to survive a 12(b)(6) motion, it must state a claim for relief that is plausible on its face. Ashcroft v. , 129 S.Ct. 1937, 1950 (2009). A claim for relief is facially plausible when the plaintiff pleads enough facts, taken as true, to allow a court to draw a reasonable inference that the defendant is liable for the alleged conduct. Id. at 1949. If the facts only allow a court to draw a reasonable inference that the defendant is possibly liable, then the complaint must be dismissed. Id. Mere legal conclusions are not ...


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