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Hector Albizo and Mary Albizo v. Wachovia Mortgage

April 19, 2012


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


In this removed mortgage case*fn1 , currently pending are a motion to dismiss plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), and a request for judicial notice jointly filed by defendant Wachovia Mortgage ("Wachovia") and Wells Fargo Bank, N.A. ("Wells Fargo") (collectively, "defendants").*fn2 (Mot. to Dismiss, Dkt. No. 11.) Also pending are defendants' motion to strike (Mot. to Strike, Dkt. No. 12) and defendants' request for judicial notice ("RJN") (RJN, Dkt. No. 13).

Plaintiffs Hector and Mary Albizo ("plaintiffs") filed an opposition to the motion to dismiss (Oppo., Dkt. No. 18) and an opposition to the motion to strike (Dkt. No. 19). Defendants filed a reply memorandum in support of their motion to dismiss (Dkt. No. 21) and a reply memorandum in support of their motion to strike (Dkt. No. 22).

The court heard these matters on its law and motion calendar on April 12, 2012. (Minutes, Dkt. No. 29.) Attorney Breyon Davis appeared on behalf of plaintiffs. Attorney Melissa Coyle appeared on behalf of defendants. The undersigned has considered the briefs, oral arguments, and the appropriate portions of the record in this case and, for the reasons stated below, grants defendants' motion to dismiss in part and denies it in part, and denies defendants' motion to strike.


Plaintiffs allege that they were the owners of 7033 Ludlow Drive, Roseville, California 95747 ("the Property"), a single family residence where plaintiffs resided with their family until September 27, 2011. (Notice of Removal, Dkt. No. 1; Exh. 1 to Notice of Removal ("Complaint"), Compl. ¶ 6.) Plaintiffs financed the Property in or around August of 2006, utilizing World Savings Bank, FSB, now Wachovia, as their initial lender and loan servicer. (Id. ¶ 7.) Plaintiffs were set-up on an automatic payment plan from inception of the mortgage loan. (Id. ¶ 12.) In July of 2010, plaintiffs were allegedly informed that Wachovia failed to withdraw their monthly payments, and Wachovia allegedly told plaintiffs they were in default and instructed plaintiffs to make a payment of $14,344.35 to bring their account current -- which plaintiffs allegedly did. (Id. ¶¶ 13-15.) Wachovia allegedly confirmed that plaintiffs' loan was current in a letter dated August 27, 2010. (Id. ¶ 15.) Plaintiffs allegedly made subsequent payments in September and October of 2010 as evidenced through their bank statements. (Id. ¶¶ 16-18.) Nevertheless, Wachovia allegedly scheduled a November 2, 2010 sale of the Property, and in response, plaintiffs strategically filed a bankruptcy to stop the sale. (Id. ¶¶ 19-23.)

Plaintiffs allegedly sought to modify their loan and submitted a loan modification application to Wachovia. (Id. ¶¶ 27, 31-34.) On July 7, 2011 Wachovia allegedly informed plaintiffs that their application was accepted and their new monthly payments would be $2,186.41. (Id. ¶¶ 33-34.) Plaintiffs allegedly timely submitted their modified payment. (Id. ¶ 34.) Nonetheless, thereafter Wachovia allegedly sold plaintiffs' property in a non-judicial foreclosure sale on or about July 18, 2011. (Id. ¶ 40.)


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. JPMorgan 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), cert. denied, 130 S. Ct. 1053 (2010). "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).

In ruling on a motion to dismiss pursuant to Rule 12(b)(6), 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). Although the court may not consider a memorandum in opposition to a defendant's motion to dismiss to determine the propriety of a Rule 12(b)(6) motion, see Schneider v. Cal. Dep't of Corrections, 151 F.3d 1194, 1197 n.1 (9th Cir. 1998), it may consider allegations raised in opposition papers in deciding whether to grant leave to amend, see, e.g., Broam v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir. 2003) (citing Orion Tire Corp. v. Goodyear Tire & Rubber Co., 268 F.3d 1133, 1137-38 (9th Cir. 2001)).


A. Defendants Argue That Plaintiffs' Allegations Are "Inconsistent With Judicially Noticeable Documents And Plaintiffs' Admissions In The Bankruptcy Action"

Defendants argue that the contents of plaintiffs' pleading conflicts with the contents of "judicially noticeable documents" and "admissions" made in plaintiffs' bankruptcy action (the "Bankruptcy Action") and unlawful detainer action (the "UD Action"), and that this renders plaintiffs' pleading defective. (Mot. to Dismiss at 3-4.) By "judicially noticeable documents,"*fn3 defendants largely mean documents arising from defendants' own records of plaintiffs' loan payments that were ultimately recorded with the county clerk as part of the foreclosure process, as well as documents arising from the Bankruptcy Action and UD Action.

Plaintiffs did not file any objections to defendants' RJN, but plaintiffs challenge the significance of the judicially noticeable documents and argue that, the documents from the UD Action do not serve to bar their claims. (Oppo. at 4-5.)

Pursuant to Federal Rule of Evidence 201, defendants' RJN materials are judicially noticeable and therefore the RJN is granted with respect to the exhibits specifically referenced within this order. See United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003); Gamboa v. Tr. Corps & Cent. Mortg. Loan Servicing Co., No. 09-0007 SC, 2009 U.S. Dist. LEXIS 19613, at *4-10 (N.D. Cal. Mar. 12, 2009) (unpublished) (court took judicial notice of recorded documents related to the foreclosure sale, including grant deed and deed of trust: "[t]hese documents are also part of the public record and are easily verifiable.")

However, in this case in particular, where plaintiffs explicitly allege that defendants failed to properly credit plaintiffs' account for loan payments, and that this allegedly led to foreclosure of plaintiffs' property despite plaintiffs' being current on the loan, defendants have not shown that the judicially noticeable documents serve to bar plaintiffs' claims at the pleading stage. The fact that defendants successfully recorded documents arising from allegedly-improper record-keeping may bring those recorded documents into a category of judicially noticeable documents not "subject to reasonable dispute," but the documents themselves do not support dismissal of plaintiffs' claims in the ways defendants suggest. For instance, the recorded Notice of Default is judicially noticeable by virtue of its recordation; however, the undersigned declines to take the documents' contents as true fact in this case, given that the recorder's office does not independently verify the contents of any given document prior to recordation. Again, in this particular case, where plaintiffs allege that defendants erroneously accounted for plaintiffs' loan payments, recordation of documents based upon those records does not itself prove that plaintiffs were properly credited for loan payments they made such that their case is barred as a matter of law at this procedural posture. Given the nature of plaintiffs' allegations in this particular case, plaintiffs dispute the accuracy of the documents underlying the recorded documents. Accordingly, while the recorded documents are accepted as judicially noticeable, defendants have not compellingly shown that such documents support dismissal of plaintiffs' pleading.

Further, the statements made in the Bankruptcy Action do not prove that plaintiffs' case fails as a matter of law or that plaintiffs' claims are deficient. Plaintiffs' statements in the Bankruptcy Action (i.e., that plaintiffs owed certain monies to the bank) do not necessarily preclude plaintiffs' action or claims for relief. The same is also true with respect to representations plaintiffs made in the UD Action. (Mot. to Dismiss. at 5-6.) Defendants are free to use plaintiffs' prior inconsistent statements to impeach plaintiffs. Defendants are free to use plaintiffs' prior inconsistent statements to frame discovery requests or deposition questions. While the submitted Bankruptcy Action documents and UD Action documents are judicially noticeable (RJN Exhs. K-T and W-Y), defendants have not compellingly shown that such documents support dismissal of plaintiffs' pleading at this procedural posture.

Accordingly, while the undersigned grants defendants' unopposed request for judicial notice with respect to the RJN exhibits specifically discussed herein, the undersigned does not find that any of the judicially noticeable documents compellingly support defendants' arguments for dismissal of plaintiffs' pleading.

B. Defendants Argue That Plaintiffs' Claims Are Barred By "Res Judicata"

Defendants argue that plaintiffs' claims are barred by "res judicata" in light of the UD Action. (Mot. to Dismiss at 6-8.) Defendants' RJN appends documents arising from the UD Action, such as a check-the-box "Answer" form by plaintiffs (Exh. X to RJN) and a check-thebox "Judgment" form in favor of defendants (Exh. Y to RJN). Apparently, the UD Action did not involve detailed findings of fact and conclusions or law, nor did it involve a lengthy trial with a transcript. It appears plaintiff Mary Albizo attended trial in the UD Action, but that plaintiff Hector Albizo did not (Exh. Y to RJN), and that plaintiffs proceeded without counsel in that action (Exhs. X &Y to RJN).

Defendants' motion fails to distinguish between "issue preclusion" and "claim preclusion," two different forms of "res judicata," and the court declines to guess at which sort of preclusion theory defendants advance. For that reason alone, defendants' "res judicata" argument is denied.

Moreover, the judicially noticeable documents arising from the UD Action confirm that those proceedings addressed possessory interests in the Property, and the UD court did not clearly reach issues of other sorts of interests in the property and/or title disputes. Defendants do not meaningfully discuss any federal authorities supporting their argument that plaintiffs' unsuccessful affirmative defenses in the UD Action should be construed as failed claims entitled to preclusive effect in this case. Defendants do not meaningfully analyze any federal authorities supporting the argument that summary unlawful detainer proceedings should be given broad preclusive effect.*fn4

Defendants cite Malkoskie v. Option One Mortg Corp., 188 Cal. App. 4th 968, 971--76 (2010), for the proposition that an unlawful detainer judgment in favor of a bank collaterally estops a homeowner from challenging the validity of the foreclosure sale. (Mot. to Dismiss at 6-8.) However, defendants have not shown that Malkoskie is sufficiently analogous to the case at bar.

First, in Malkoskie, the plaintiff's subsequent action was based on a challenge to the validity of the foreclosure sale. Malkoskie, 188 Cal. App. 4th at 972. Here, plaintiffs are not solely challenging the validity of the foreclosure sale; instead, plaintiffs are also challenging defendants' conduct (i.e., properly accounting for plaintiffs' loan payments, agreeing to a loan modification, etc.) that occurred before the foreclosure sale. Plaintiffs allege negligent and/or fraudulent conduct in keeping track of plaintiffs' loan payments and modification status, and misleading plaintiffs about whether or when they would foreclose on the property. (Compl. ¶¶13-23, 31-34, 40.) Second, in Malkoskie, the unlawful detainer action was resolved by stipulated judgment, which the court stated "is usually as conclusive a merger or bar as a judgment rendered after trial." Malkoskie, 188 Cal. App. 4th at 973. Here, plaintiffs did not stipulate to the unlawful detainer judgment. Instead, that judgment was effectuated by way of a short minute order (Exh. Y to RJN), making it unclear precisely what the unlawful detainer court determined. Third, the court in Malkoskie clarified that an unlawful detainer action "is a summary proceeding ordinarily limited to resolution of the question of possession" and that "any judgment arising therefrom is given limited res judicata effect." Malkoskie, 188 Cal. App. 4th at 973 (citing Vella v. Hudgins, 20 Cal.3d 251, 255 (1977).) Therefore, defendants have not shown that Malkoskie controls in the instant action.

In opposing defendants' argument, plaintiffs cite authorities suggesting that UD proceedings should not be given preclusive effect, especially where there was no trial transcript of the UD proceeding, no findings of fact or conclusions of law in the UD proceeding, and where only a minute order disposes of the UD proceeding. (Oppo. at 4-5.) In Vella, for instance, "the record offered in support of the plea of res judicata was virtually barren . . . for no transcript of the municipal court hearing exists, and no findings of fact or conclusions of law were made, other than a notation in the trial judge's minute order to the effect that Vella had not proved her affirmative defenses." Vella, 20 Cal. 3d 251, 255-58 ("The sparse [unlawful detainer court] record presented to us fails to show either the precise nature of the factual issues litigated, or the depth of the court's inquiry. We decline to assume, given the summary character of this type of action, that the mere pleading of a defense without objection by the adverse party necessarily demonstrates adequate opportunity to litigate the defense.").) Plaintiffs' argument is well-taken, as the records from the UD Action appear as scant as those in Vella. See id.

Accordingly, defendants have not met their burden of showing that plaintiffs' case should be dismissed on the suggested "res judicata" grounds, and the motion to dismiss is denied with respect to this argument.

C. Defendants Argue That Plaintiff's "Negligence" Claim Fails For Several Reasons

1. Defendants Argue That The"Negligence" Claim Fails Because, In General, Banks Lack A Duty Of Care To Borrowers

According to defendants, plaintiffs' claims are "based entirely on the right of the bank to collect loan payments and/or to foreclose on the Property furnished as security for the loan. Indeed, foreclosing on a security interest under a deed of trust and collecting or demanding loan payments are certainly conventional activities of a lender and do not create a duty of care on the part of" defendants. (Mot. to Dismiss at 9 (citing Nymark v. Heart Fed. Sav. & Loan Ass'n, 231 Cal. App. 3d 1089, 1095 (1991); Sohal v. Federal Home Loan Mortg. Corp., No. C 11-01941 JSW, 2011 U.S. Dist. LEXIS 97355, at *25 (N.D. Cal. Aug. 30, 2011) (unpublished) (dismissing plaintiffs' negligence claim where plaintiffs did "not allege that [defendant banks] acted negligently in connection with the loan modification process" and where plaintiffs alleged only that defendant banks participated in Home Affordable Modification Program ("HAMP"), which was not itself sufficient to allege that the bank had "gone beyond its usual role of a money lender.")

"Under California law, a lender does not owe a borrower or third party any duties beyond those expressed in the loan agreement, except[] those imposed due to special circumstance." Resolution Trust Corp. v. BVS Dev., 42 F.3d 1206, 1214 (9th Cir. 1994) (citing Nymark, 231 Cal. App. 3d at 1096)).*fn5 However, special circumstances triggering a duty may arise when a lender actively participates in a financed enterprise with a borrower. See Nymark, 231 Cal. App. 3d at 1096; Wagner v. Benson, 101 Cal. App. 3d 27, 35 (1980).

The court in Nymark cautioned that the "general rule" that a lender does not owe a duty of care to a borrower is not absolute. See e.g., Garcia v. Ocwen Loan Servicing, LLC, No. C 10-0290 PVT, 2010 WL 1881098, at *2 (N.D. Cal. May 10, 2010) (unpublished) (". . . Nymark does not stand for the proposition that a lender never owes a duty of care to a borrower.") At least one district court has found that a duty of care may arise in connection with "processing [a] loan modification application." See id. at *3 (finding that a lender owed a duty of care to a borrower-client in processing the borrower's loan modification application).

At least for pleading stage purposes, defendants' discussion of cited authorities does not support the dismissal of plaintiffs' negligence claims. For instance, defendants' citation to Sohal is not instructive because here, plaintiffs allege negligence in connection with the loan modification process, the foreclosure process, and in defendants' accounting for plaintiffs' loan payments in connection with both processes, not merely that defendants' participation in the HAMP program triggered a duty of care to plaintiffs as in Sohal. See Sohal, 2011 U.S. Dist. LEXIS 97355 at *24-25. Defendants' cited cases do not address alleged negligence by a bank in the context of a loan modification, or in the context of improper accounting for loan payments leading to foreclosure of a property where the mortgage payments were allegedly current. Absent discussion of such authority, the undersigned declines to dismiss plaintiffs' negligence claims at the pleading stage.*fn6

2. Defendants Argue That Plaintiffs'"Negligence" Claim Fails Because Plaintiffs Failed To Allege Any Damages Resulting From The Alleged Negligence

Defendants also argue that plaintiffs cannot allege any damages arising from alleged negligence. (Mot. to Dismiss at 9-10.) However, plaintiffs have pleaded such damages: they allege that negligent accounting for loan payments and lack of adherence to the terms of an agreed-upon modification resulted in actual foreclosure of their home and, therefore, loss of real property. Defendants' argument that plaintiffs failed to plead facts supporting the "damages" element of their negligence claim is not well-taken.

3. Defendants Argue That Plaintiffs'"Negligence" Claim Fails Because The Claim Is Pursuant To Civil Code section 2924 Such That Defendants' Foreclosure Filings Were Privileged Defendants also argue that "plaintiffs fail to pierce the qualified privilege of Civil Code § 47 and 2924(d)" such that plaintiffs' negligence claim is barred.*fn7 (Mot. to Dismiss at 10.) Defendants cite to Paragraph 51 of the complaint and state that ...

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