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Ted F. Harvey v. Bank of America


February 20, 2013



United States District Court For the Northern District of California


Now before the Court is Defendant Bank of America, N.A.'s 19 ("Defendant") motion to dismiss Plaintiff Ted F. Harvey's 20 ("Plaintiff") Second Amended Complaint ("SAC"). ECF No. 27 21 ("MTD"); ECF No. 26 ("SAC"). The motion is fully briefed, ECF 22 Nos. 29 ("Opp'n"), 30 ("Reply"),*fn1 and appropriate for determination 23 without oral argument, Civ. L.R. 7-1(b). For the reasons discussed 24 below, the Court GRANTS IN PART and DENIES IN PART Defendant's 25 motion to dismiss. 26


The Court has already given a factual overview of this matter 3 in its Order dismissing in part Plaintiff's First Amended Complaint 4 ("FAC"), Harvey v. Bank of America, N.A., -- F.Supp.2d --, 2012 5 U.S. Dist. LEXIS 154319, 2012 WL 5337425 (N.D. Cal. Oct. 26, 2012) 6 (hereinafter "Order Dismissing FAC"). A brief summary of the this 7 case's posture follows. 8

Plaintiff filed his first complaint in this case on June 22, 2 2012. ECF No. 1. Defendant moved to dismiss the complaint, ECF 10 No. 9, but Plaintiff mooted that motion by filing the FAC on July 9 31, 2012, ECF No. 12. Defendant responded with motions to dismiss 12 and to strike on August 7, 2012. ECF Nos. 14 ("MTS"), 15 ("MTD"). 13

The Court granted in part and denied in part Defendant's motion to 14 dismiss, giving Plaintiff leave to amend, and denied Defendant's 15 motion to strike. Order Dismissing FAC at **11-12. Plaintiff 16 filed the SAC on November 11, 2012, asserting eight claims against 17 Defendant: (1) violation of the Equal Credit Opportunity Act 18 ("ECOA"), 15 U.S.C. § 1691 et seq.; (2) breach of the implied 19 covenant of good faith and fair dealing; (3) breach of contract; 20 (4) promissory estoppel; (5) wrongful foreclosure under Cal. Civ. 21 Code § 2924 et seq.; (6) intentional misrepresentation by 22 promissory fraud; (8) negligent misrepresentation; and (9) 23 violation of California's Unfair Competition Law ("UCL"), Cal. Bus. 24 & Prof. Code § 17200 et seq. Defendant moved to dismiss the SAC on 25 December 5, 2012. 26

United States District Court For the Northern District of California


A. Motions to Dismiss

A motion to dismiss under Federal Rule of Civil Procedure 4 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. 5 Block, 250 F.3d 729, 732 (9th Cir. 2001). "Dismissal can be based 6 on the lack of a cognizable legal theory or the absence of 7 sufficient facts alleged under a cognizable legal theory." 8

Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 9 1988). "When there are well-pleaded factual allegations, a court 10 should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Ashcroft v. 12 Iqbal, 556 U.S. 662, 664 (2009). However, "the tenet that a court 13 must accept as true all of the allegations contained in a complaint 14 is inapplicable to legal conclusions. Threadbare recitals of the 15 elements of a cause of action, supported by mere conclusory 16 statements, do not suffice." Id. at 663 (citing Bell Atl. Corp. v. 17

Twombly, 550 U.S. 544, 555 (2007)). The allegations made in a 18 complaint must be both "sufficiently detailed to give fair notice 19 to the opposing party of the nature of the claim so that the party 20 may effectively defend against it" and "sufficiently plausible" 21 such that "it is not unfair to require the opposing party to be 22 subjected to the expense of discovery." Starr v. Baca, 633 F.3d 23 1191, 1204 (9th Cir. 2011).

In addition to these general pleading standards, a heightened 25 standard applies to claims sounding in fraud. See Fed. R. Civ. P. 26 9(b). "To satisfy Rule 9(b), a pleading must identify 'the who, 27 what, when, where, and how of the misconduct charged,' as well as 28 'what is false or misleading about [the purportedly fraudulent] statement, and why it is false.'" United States ex rel Cafasso v. 2 Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011). 3 4


Defendant's only compelling argument that Plaintiff's SAC 6 should be dismissed is that Plaintiff's claims fail individually.*fn2

A. Claim 1: ECOA

Congress passed ECOA to prevent discrimination by creditors 9 against certain classes of credit applicants: 10

It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction--(1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant's income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under this chapter.

U.S.C. § 1691(a). Plaintiff seeks relief under a provision of 17 ECOA, 15 U.S.C. § 1691(d)(1), that requires creditors to notify 18 applicants of the outcome of their credit applications within 19 thirty days of the application. SAC ¶¶ 37-41 (alleging delay of 20 several months). 21

Though the Ninth Circuit has yet to articulate the elements of 22 an ECOA claim, numerous district courts in this circuit have held 23 that, to state a claim under ECOA, a plaintiff must allege that: 2

"(1) she is a member of a protected class; (2) she applied for 3 credit with defendants; (3) she qualified for credit; and (4) she 4 was denied credit despite being qualified." See, e.g., Hafiz v. 5 Greenpoint Mortg. Funding, Inc., 652 F. Supp. 2d 1039, 1045 (N.D. 6 Cal. 2009) (citing Chiang v. Veneman, 385 F.3d 256, 259 (3d Cir. 7 2004)). 8

The Court dismissed Plaintiff's FAC's ECOA claim with leave to 9 amend, because Plaintiff did not adequately plead that he was a 10 member of an ECOA-protected class or that the HAMP application for a loan modification was an application for "credit" per ECOA. 12 Order Dismissing FAC at *5. In the SAC, Plaintiff provides only a 13 formulaic recitation that he is a member of an ECOA-protected class 14 and that he was an "applicant for credit" per ECOA's terms. SAC ¶¶ 15 35-36. Plaintiff's ECOA claim therefore fails again. Twombly, 550 16

U.S. at 558 ("formulaic recitations" of a cause of actions elements 17 are insufficient to overcome motions to dismiss). The Court 18 DISMISSES Plaintiff's ECOA claim with prejudice. 19

B. Claim 2: Implied Covenant of Good Faith and Fair Dealing

"The covenant of good faith and fair dealing, implied by law 21 in every contract, exists merely to prevent one contracting party 22 from unfairly frustrating the other party's right to receive the 23 benefits of the agreement actually made." Guz v. Bechtel Nat. 24 Inc., 24 Cal. 4th 317, 349 (Cal. 2000). The covenant thus prevents 25 a contracting party from taking an action that, although 26 technically not a breach, frustrates the other party's right to the 27 benefit of the contract. Love v. Fire Ins. Exchange, 221 Cal. App. 28 3d 1136, 1153 (Cal. Ct. App. 1990). The covenant "cannot impose substantive duties or limits on the contracting parties beyond 2 those incorporated in the specific terms of their agreement." Guz, 3 24 Cal. 4th at 349-50. The elements of a claim for breach of the 4 covenant of good faith and fair dealing are: 5

(1) the plaintiff and the defendant entered into a contract; (2) the plaintiff did all or substantially all of the things that the contract required him to do or that he was excused from having to do; (3) all conditions required for the defendant's performance had occurred; (4) the defendant unfairly interfered with the plaintiff's right to receive the benefits of the contract; and (5) the defendant's conduct harmed the plaintiff.

Woods v. Google, Inc., -- F. Supp. 2d --, 2012 WL 3673319, at *8 12 (N.D. Cal. 2012) (citing Judicial Counsel of California Civil Jury 13 Instructions § 325 (2011)). 14

The Court dismissed Plaintiff's FAC with leave to amend 15 because Plaintiff did not specify a breach arising from a specific 16 provision of the Deed of Trust ("DOT") or the underlying promissory 17 note. Order Dismissing FAC at *7. Rather, Plaintiff had alleged 18 breaches of promises independent from the ones contained in the DOT 19 and note. FAC ¶ 44 (basis of implied covenant claim was in 20 Defendant's oral promises, not the written contracts). Such 21 promises cannot sustain a claim for a breach of the covenant 22 implied in the DOT and note. Plastino v. Wells Fargo Bank, 873 F. 23 Supp. 2d 1179, 1191-92 (N.D. Cal. 2011). 24

In the SAC, Plaintiff now points specifically to Section 1 of 25 the DOT, which provides that "[b]orrower shall pay when due the 26 principal of, and interest on, the debt evidenced by the Note and 27 any prepayment charges and late charges under the Note." SAC ¶ 46. 28

Plaintiff alleges that implicit in this term is Defendant's obligation not to hinder Plaintiff's performance or prevent his 2 ability to make payments. Id. Plaintiff alleges that Defendant 3 hindered Plaintiff's ability to make payments under the contract by 4 advising Plaintiff not to make payments in order to apply for a 5 loan modification and by promising Plaintiff that it would not 6 report him late or foreclose on his property while his loan 7 modification application was under review. Id. ¶ 48. Defendant 8 argues that Plaintiff's claims must fail because the DOT does not 9 contain language regarding hindrance of performance, and that 10 breach of the implied covenant claims cannot be premised on contract duties -- like the duty to modify loan agreements -- that 12 do not exist as a matter of law. MTD at 9-10. 13

Defendant's arguments are unavailing, because all contracts 14 contain an implied covenant not to hinder the other party's 15 performance, Tanner v. Title Ins. & Trust Co., 20 Cal. 2d 814, 825 16 (Cal. 1942), and Plaintiff has not claimed that his argument is 17 based on any duty that does not exist as a matter of law. 18

Plaintiff argued that Defendant hindered his ability to make 19 payments under the portion of the DOT that required him to do so. 20

Plaintiff has sufficiently stated a claim for breach of an implied 21 covenant because he now points to a specific portion of the DOT 22 that obliged him to pay his debt to Defendant, and has also alleged 23 that Defendant's bad faith dealings with him frustrated his payment 24 of that debt. Defendant's motion to dismiss Plaintiff's breach of 25 the implied covenant claim is DENIED. 26

C. Claim 3: Breach of Contract

"To state a cause of action for breach of contract, a party 28 must plead [1] the existence of a contract, [2] his or her performance of the contract or excuse for nonperformance, [3] the 2 defendant's breach, and [4] resulting damage." Mora v. U.S. Bank, 3 N.A., No. 11-6598 SC, 2012 WL 2061629, *6 (N.D. Cal. June 7, 2012) 4 (citing Harris v. Rudin, Richman & Appel, 74 Cal. App. 4th 299, 307 5 (Cal. Ct. App. 1999)). Additionally, if the plaintiff alleges the 6 existence of a contract, the plaintiff may set forth the contract 7 verbatim, attach it as an exhibit, or plead it according to its 8 legal effect. See Lyons v. Bank of America, N.A., No. 11-01232 CW, 9 2011 WL 3607608, at *2 (N.D. Cal. Aug. 15, 2011). 10

Plaintiff alleges essentially that Defendant could foreclose on the loan agreement and seek to recover late payments only if 12 Plaintiff was in default on his loan payments, and that Defendant 13 breached the agreement by foreclosing and seeking late fees when 14 the loan was not in default. SAC ¶¶ 59-64. The Court finds that 15 Plaintiff has failed to plead a breach by Defendant, because 16 Plaintiff has still not pointed to provisions of the DOT that 17 Defendant actually breached. Plaintiff's breach of contract claim 18 is DISMISSED with prejudice. 19

D. Claim 4: Promissory Estoppel

The Court left Plaintiff's claim for promissory estoppel 21 undisturbed in its previous Order, denying Defendant's motion to 22 dismiss it. Order Dismissing FAC at *9. Plaintiff did not alter 23 his promissory estoppel claim in the SAC. SAC ¶¶ 65-69. Defendant 24 has failed to enunciate any compelling reasons for the Court to 25 revisit its prior decision. Defendant's motion to dismiss 26 Plaintiff's promissory estoppel claim is therefore DENIED. 27

E. Claim 5: Wrongful Foreclosure

The Court initially dismissed Plaintiff's claim that the foreclosure proceedings instituted by Defendant violated 2 California's non-judicial disclosure scheme in California Civil 3 Code sections 2924 et seq., because Plaintiff did not allege 4 specific conduct that violated the law or identify which sections 5 of the law Defendant allegedly violated. Order Dismissing FAC at 6 *9. Plaintiff now pleads that he was excused from performance 7 under his loan agreements because Defendant instructed him not to 8 make payments, thereby rendering Plaintiff not in " breach of the 9 obligation for which the mortgage or transfer in trust is 10 security." SAC ¶ 75. Plaintiff avers that this excuse rendered institution of foreclosure and Defendant's recordation of a Notice 12 of Default improper under the statute. Id. ¶¶ 75-76. Defendant 13 argues that Plaintiff lacks standing to bring such a claim because 14 he failed to satisfy the tender requirement, and in any event, 15 California Civil Code section 2924 contains no private right of 16 action. MTD at 18-19. 17

The Court has already discussed why Defendant's argument about 18 tender fails. See Order Dismissing FAC, supra, at *4. However, 19 the Court finds Plaintiff's claims here are in error for other 20 reasons. California Civil Code section 2924 relates to the notice 21 a mortgagee must provide when initiating a foreclosure action, but 22 Plaintiff is not disputing the sufficiency of notice provided. SAC 23 ¶ 75. Further, while Plaintiff is correct that this Court and 24 others have found an implied private right of action in parts of 25 California's non-judicial foreclosure laws, the only remedy of such 26 an implied right is the postponement of a foreclosure sale. See, 27 e.g., Shaterian v. Wells Fargo Bank, N.A., 829 F. Supp. 2d 873, 887 28

(N.D. Cal. 2011). Plaintiff has not asked for this, praying instead for damages and attorneys' fees. SAC ¶¶ 77-78. 2

The Court DISMISSES Plaintiff's wrongful foreclosure claim 3 with leave to amend, if Plaintiff has grounds to pray for the 4 postponement of an impending foreclosure sale. 5

F. Claim 6 & 7: Intentional Misrepresentation by Promissory

Fraud & Negligent Misrepresentation

Plaintiff's intentional misrepresentation claim proceeds on an 8 estoppel theory, that is, the theory that Defendant made a promise 9 that it never intended to honor. See SAC ¶¶ 79-83. The elements 10 of an estoppel claim are: "(1) a representation of material fact by defendant, (2) with knowledge, actual or virtual, of the true 12 facts, (3) to a party actually or permissively ignorant of the 13 truth, (4) with the intention, actual or virtual, that the other 14 party act upon it, and (5) the other party was induced to act." 15

Cedars Sinai Med. Ctr. v. Mid-W. Nat. Life Ins. Co., 118 F. Supp. 16 2d 1002, 1012 (C.D. Cal. 2000) (citing San Diego Mun. Credit Union 17 v. Smith, 176 Cal. App. 3d 919, 923 (Cal. Ct. App. 1986)). The 18 elements of a negligent misrepresentation cause of action differ 19 only with respect to the requisite state of mind. Id.; JMP Sec. 20 LLP v. Altair Nanotechnologies Inc., 880 F.Supp.2d 1029, 1042 (N.D. 21 Cal. 2012). Here, Plaintiff's negligent misrepresentation claim 22 relies on allegations identical to those supporting his intentional 23 misrepresentation claim. Compare SAC ¶¶ 79-83 with id. ¶¶ 85-88. 24

Because these claims sound in fraud, Plaintiff must plead the 25 circumstances of the purported fraud with particularity, though he 26 may allege intent generally. Fed. R. Civ. P. 9(b). 27

Plaintiff pled the same claims for intentional and negligent 28 misrepresentation in the FAC. See FAC ¶¶ 79-87. The Court dismissed those claims as insufficiently pled, because Plaintiff 2 did not clearly and consistently allege the content of the 3 allegedly fraudulent promise or specify the instances when it 4 occurred or why it was false. Order Dismissing FAC at *9. While 5 Plaintiff originally pled only "the thrust of what was said and in 6 what month it was said," id., Plaintiff now identifies roughly the 7 date of the statements, SAC ¶ 82 ("in or around March 20, 2009"), 8 and the name of the person who made them, id. ("[Defendant's] 9 representative Michael Z. Hollander"). As to intent, Plaintiff has 10 pled somewhat general claims about Defendant's state of mind, see id. ¶¶ 82-83, 88-89, but that suffices under Rule 9(b). 12

Plaintiff has stated plausible claims for intentional and 13 negligent misrepresentation. Defendant's motion as to these claims 14 is DENIED.

G. Claim 8: UCL

The UCL prohibits unfair competition, including, inter alia, 17 "any unlawful, unfair or fraudulent business act." Cal. Bus. & 18 Prof. Code § 17200. "Because [section 17200] is written in the 19 disjunctive, it establishes three varieties of unfair competition--20 acts or practices which are unlawful, or unfair, or fraudulent." 21

Berryman v. Merit Prop. Mgmt., Inc., 152 Cal. App. 4th 1544, 1554 22 (Cal. Ct. App. 2007). Plaintiffs can plead a UCL violation under 23 the "unlawfulness" prong by pleading that a business practice 24 violated a predicate federal, state, or local law. See Cel--Tech 25 Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 26 180 (citing State Farm Fire & Cas. Co. v. Superior Court, 45 Cal. App. 4th 1093, 1103 (Cal. Ct. App. 1996)). California courts and 28 the legislature have not specified which of several possible "unfairness" standards is the proper one, but this Court recently 2 found that the California Supreme Court would likely adopt the 3 approach to unfairness provided in Camacho v. Automobile Club of 4 Southern California, 142 Cal. App. 4th 1394, 1402 (Cal. Ct. App. 5 2006), which incorporated the three factors constituting unfairness 6 under the Federal Trade Commission Act: "(1) the injury must be 7 substantial; (2) the injury must not be outweighed by any 8 countervailing benefits to consumers or competition; and (3) the 9 injury must be one that the consumer could not reasonably have 10 avoided." Lyons, 2011 WL 3607608, at *10 (citing Camacho, 12 Cal. App. 4th at 1402). Finally, violations of the UCL's "fraudulent" 12 prong require plaintiffs to plead that a defendant's allegedly 13 fraudulent business practice is one "in which members of the public 14 are likely to be deceived." Id. at *11 (citing Morgan v. AT&T 15 Wireless Servs., Inc., 177 Cal. App. 4th 1235, 1254 (Cal. Ct. App. 16 2009)). 17

Plaintiff's FAC did not clearly plead a cognizable legal 18 theory on which to base his UCL claim, primarily because Plaintiff 19 confusingly mixed two different, analytically distinct theories of 20 recovery under the UCL: the "borrowing" theory and the "tethering" 21 theory. Order Dismissing FAC, supra, at *11. Moreover, Plaintiff 22 did not specify the UCL prong or prongs on which he was basing his 23 claims. Id. Now Plaintiff appears to have based his claim solidly 24 on the "unlawful" prong of the UCL, which "borrows" from violations 25 of other laws. See SAC ¶ 94. 26

"The UCL's 'unlawful' prong is essentially an incorporate-by-27 reference provision." Martinez v. Wells Fargo Home Mortg., Inc., 28 180.) "By proscribing 'any unlawful' business practice, section 17200 borrows violations of other laws and treats them as unlawful 3 practices that the [UCL] makes independently actionable." 4 (citations and some internal quotation marks omitted)). Cel-Tech, 5 20 Cal. 4th at 180. "It does not matter whether the underlying 6 statute also provides for a private cause of action; section 17200 7 can form the basis for a private cause of action even if the 8 predicate statute does not." Chabner v. United of Omaha Life Ins. 9 Co., 225 F.3d 1042, 1048 (9th Cir. 2000) (citations omitted). 10

Plaintiff alleges that because the UCL borrows violations of other laws and treats them as unlawful competition, Defendant 12 violated the UCL under the following theories: (1) violation of 13 ECOA; (2) breach of the covenant of good faith and fair dealing; 14 (3) breach of contract; (4) promissory estoppel; (5) violations of 15 California Civil Code section 2924 et seq., California's non-16 judicial foreclosure laws; and (6) intentional and negligent 17 misrepresentation. 18

Of these alleged bases for Defendant's violation of the UCL, 19 two are statutory and the rest are common law claims. The Court 20 has already found that Plaintiff did not plead violations of the 21 two statutory provisions he cites. Common law violations such as 22 breach of contract are insufficient to show violations of the UCL's 23 unlawfulness prong. Shroyer v. New Cingular Wireless Servs., Inc., 24 622 F.3d 1035, 1044 (9th Cir. 2010); Lyons, 2011 WL 3607608, at 25 *11. In some cases, courts have found that a breach of contract 26 can be the basis of a UCL unlawful business practices claim if it 27 was part of a systemic pattern and practice of breaching certain 28 types of contract, see Lyons, 2011 WL 3607608, at *11, but Plaintiff has not pled that, nor has he sufficiently pled a breach 2 of contract at all. Because Plaintiff's statutory claims failed, 3 and his other claims allege only violations of common law, 4

Plaintiff's UCL claims also fail. 5

However, allowing Plaintiff to amend his UCL claims would not 6 be inequitable or futile in this case. Plaintiff has leave to 7 amend his UCL claims to plead violations of the unfairness or 8 fraudulent prongs. 9


As explained above, the Court GRANTS IN PART and DENIES IN 3 PART Defendant Bank of America N.A.'s motion to dismiss Plaintiff 4 Ted F. Harvey's amended complaint. The Court orders as follows: 5 Claim 1 (ECOA) is DISMISSED WITH PREJUDICE. 6 Claim 2 (Implied Covenant of Good Faith and Fair Dealing) is 7 undisturbed. 8 Claim 3 (Breach of Contract) is DISMISSED WITH PREJUDICE. 9 Claim 4 (Promissory Estoppel) remains undisturbed. 10 Claim 5 (Wrongful Foreclosure) is DISMISSED with leave to amend. 12

Claim 6 (Intentional Misrepresentation) is undisturbed. 13 Claim 7 (Negligent Misrepresentation) is undisturbed. 14 Claim 8 (UCL) is DISMISSED with leave to amend. 15 16


Dated: February ___, 2013 19


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