United States District Court, N.D. California
LATARA BIAS, ERIC BREAUX, and NAN WHITE-PRICE, individually and on behalf of other members of the general public similarly situated, Plaintiffs,
WELLS FARGO & COMPANY and WELLS FARGO BANK, N.A., Defendants
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For Latara Bias, Eric Breaux, Nan White-Price, Plaintiffs: Daniel Alberstone, Mark Philip Pifko, Roland K. Tellis, LEAD ATTORNEYS, Baron & Budd, P.C., Encino, CA.
For Wells Fargo & Company, Wells Fargo Bank, N.A., Defendants: Mark Douglas Lonergan, LEAD ATTORNEY, Michael Jan Steiner, Severson & Werson, San Francisco, CA; Michelle Therese McGuinness, Severson & Werson, A Professional Corporation, San Francisco, CA; Rebecca Snavely Saelao, Severson & Werson, a P.C., San Francisco, CA.
Order Denying Defendants' Motion to Dismiss
YVONNE GONZALEZ ROGERS, UNITED STATES DISTRICT COURT JUDGE.
Plaintiffs initiated this class action on February 10, 2012 concerning fraudulent practices in connection with the servicing of their home mortgage loans. (Dkt. No. 1.) After a previous round of motions, the Court ordered that claims against each of the three groups of defendants be severed into three separate actions. (Dkt. No. 59.) Thereafter, Named Plaintiffs Latara Bias, Eric Breaux, and Nan White-Price filed the Second Amended Class Action Complaint (" SAC" ) against Defendants Wells Fargo & Company and Wells Fargo Bank, N.A. (collectively, " Wells Fargo" or " Defendants" ). (Dkt. No. 61.)
Wells Fargo filed a Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6) on August 7, 2012, seeking dismissal of the SAC without leave to amend. (Dkt. No. 66.) On August 21, 2012, Plaintiffs filed their Opposition to the Wells Fargo Defendants' Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6). (Dkt. No. 67.) Wells Fargo filed their Reply Memorandum in Support of Motion to Dismiss on August 28, 2012. (Dkt. No. 68.) The Court held oral argument on November 6, 2012. (Dkt. No. 72.)
Having carefully considered the papers submitted and the pleadings in this action, oral argument at the hearing held on November 6, 2012, and for the reasons set forth below, the Court Denies Wells Fargo's Motion to Dismiss.
I. Factual and Procedural Background
Plaintiffs allege that Defendants have engaged and continue to engage in fraudulent practices in connection with their home mortgage loan services, in which Defendants assess fraudulent fees upon a homeowner's default.  (SAC ¶ ¶ 1-2.) As part of a fraudulent scheme, Defendants " formed an enterprise with their respective subsidiaries, affiliates, and 'property preservation' vendors, . . . unlawfully mark[ed] up default-related fees charged by third parties[,] and assess[ed] them against borrowers' accounts" for an undisclosed profit. ( Id. ¶ 8.) Specifically, " Defendants order[ed] default-related services from their subsidiaries and affiliated companies, who, in turn, obtain[ed] the services from third-party vendors." ( Id. ¶ 40.) The third-party vendors charged Defendants for their services, but Defendants " assess[ed] borrowers a fee that [wa]s significantly marked-up from the third-party vendors' actual fees for the services." ( Id.; see also id. ¶ ¶ 45, 54 & 57.)
Plaintiffs allege their mortgage contracts disclosed that Defendants will pay for default-related services when necessary, which would be reimbursed by borrowers, but " [n]owhere [wa]s it disclosed to borrowers that the servicer may mark-up the actual cost of those services to make a profit." (SAC ¶ 42.) Defendants identified the marked-up fees as " Other Charges" or " Other Fees" on mortgage statements. ( Id. ¶ ¶ 9, 48 & 57.) When borrowers inquired about the fees, Defendants allegedly concealed and misled the borrowers to dissuade them from challenging the charges, and told them that the fees were in accordance with their mortgages. ( Id. ¶ 57.)
The allegedly marked-up fees included Broker's Price Opinion fees (" BPOs" ) and appraisal fees. (SAC ¶ ¶ 30 & 43-57.) With regard to BPOs, Plaintiffs allege that Defendants established an " inter-company division or d/b/a" called Premiere Asset Services (" Premiere" ), which participated as a member of the enterprise and existed to generate revenue and undisclosed profits for Defendants. ( Id. ¶ ¶ 48-52.) Although affiliated with Wells Fargo, Premiere advertised to " make it appear as though [it] [wa]s an independent company" providing BPOs. ( Id. ¶ 51.) However, Plaintiffs allege Premiere was created to act as a " phony third party vendor" such that it would appear to borrowers that amounts assessed on accounts were third-party costs. ( Id. ¶ 56.) Premiere sub-contracted BPOs to different local real estate brokers and, at Defendants' direction, invoiced Wells Fargo Bank, N.A. " as if [it] was an independent, third-party vendor." ( Id. ¶ 52.) Plaintiffs allege that Defendants " never actually pa[id]" the invoices or Premiere for the BPOs, but paid a lesser amount directly to the local real estate brokers and assessed borrowers' accounts for a marked-up amount on the manufactured " invoices." ( Id. ¶ ¶ 53-57.)
Plaintiffs also allege that Defendants used a sophisticated home loan management program provided by Fidelity National Information System, Inc. called Mortgage Servicing Package (the " Program" ). (SAC ¶ 36.) The Program " automatically implement[ed] decisions about how to manage borrowers' accounts based on internal software logic" and imposed the default-related fees when a loan was past due. ( Id. ¶ 37.) The parameters and guidelines for the Program were inputted by Defendants and " designed by the executives" at Wells Fargo. ( Id. ¶ ¶ 35-38.)
As stated supra, Wells Fargo serviced Plaintiffs' mortgages. (SAC ¶ ¶ 64 & 66.) As to Plaintiffs Bias and Breaux, Wells Fargo began assessing $95 BPOs on December 28, 2006. ( Id. ¶ 65 (also assessing on September 27, 2007 and March 28, 2008).) Bias and Breaux allege they paid some or all of the unlawful fees assessed on their account. ( Id. ) Plaintiff White-Price was assessed $100 in " Other Charges" on September 19, 2011, and believes she paid some or all of the unlawful fees assessed on her account. ( Id. ¶ 67.) In addition, borrowers have suffered additional harm resulting from: (i) charges for default-related services accumulated over time such that borrowers were driven further into default and/or more ensured to stay in default; (ii) damage to credit scores; (iii) the inability to obtain favorable interest rates on future loans because of their default; and (iv) in some cases, foreclosure. ( Id. ¶ ¶ 59-63.)
On the basis of the allegations summarized above, Plaintiffs bring this action on behalf of a class of " [a]ll residents of the United States of America who had a loan serviced by Wells Fargo Bank, N.A. or its subsidiaries or divisions, and whose accounts were assessed fees for default-related services, including Broker's Price Opinions, and inspection fees, at any time, continuing through the date of final disposition
of this action." (SAC ¶ 74.) The SAC alleges five claims.
Plaintiffs' first claim alleges a violation of California Business and Professions Code section 17200, et seq. (" UCL" or " Section 17200" ) based on the allegedly unlawful, unfair, and fraudulent business practices summarized above. (SAC ¶ ¶ 88-100.) Specifically, Defendants omitted a true itemization or description of the fees assessed and concealed the marked-up fees in violation of the disclosures in the mortgage agreements. Defendants were not legally authorized to collect these fees, and Plaintiffs/class members believed they were obligated to pay the amounts assessed when they were not so obligated. Plaintiffs/class members had a reasonable expectation that under the operative agreements and law, the charges were valid and Defendants were not unlawfully marking-up fees. In addition, Defendants lulled borrowers into a sense of trust and dissuaded them from challenging the unlawful fees by telling them the fees were in accordance with the mortgage agreements. Plaintiffs allege they have been injured and suffered loss of money or property, and that they would not have paid the fees (or would have challenged them) if not for Defendants' concealment of material facts.
Plaintiffs' second claim alleges a violation of the Racketeer Influenced and Corrupt Organizations Act (" RICO" ), 18 U.S.C. section 1962(c). (SAC ¶ ¶ 101-123.) The alleged " enterprise" consisted of: (i) Wells Fargo & Company, Wells Fargo Bank, N.A., including their directors, employees, and agents; (ii) their subsidiaries and affiliated companies; and (iii) their third-party vendors, including " property preservation" vendors  and the real estate brokers who provide BPOs. (SAC ¶ 104.) This " association-in-fact" enterprise is an " ongoing, continuing group . . . of persons and entities associated together for the common purpose of limiting costs and maximizing profits by fraudulently concealing assessments for unlawfully marked-up fees for default-related services on borrowers' accounts." ( Id. ¶ 105; see id. ¶ ¶ 3, 8, 46, 49, 104-108.) The members--while " systematic[ally] link[ed]" through contractual and financial ties--act according to policies established by Wells Fargo executives but also " have an existence separate and distinct from the enterprise." ( Id. ¶ ¶ 106-107.) Plaintiffs allege that Defendants' scheme constituted " racketeering activity" based on acts of mail and wire fraud (18 U.S.C. sections 1341 and 1343), by which Defendants communicated false information regarding the alleged fees due and omitted the true amounts at issue through use of the mail and wires. Plaintiffs seek treble damages under RICO.
Plaintiffs' third claim alleges a conspiracy to violate RICO. (SAC ¶ ¶ 124-128.) Defendants allegedly conspired to violate RICO as summarized above, were aware of the nature and scope of the enterprise's unlawful scheme, and agreed to participate in said scheme. Plaintiffs' fourth claim alleges unjust enrichment as a result of the wrongful acts and omissions of material fact. ( Id. ¶ ¶ 129-138.) Plaintiffs seek restitution and an order disgorging all profits obtained by Defendants. Plaintiffs' fifth claim alleges common law fraud as summarized above. ( Id. ¶ ¶ 139-151.)
In the pending Motion, Wells Fargo argues that the first claim for violation of the UCL should be dismissed either because a choice of law provision requires the application of Louisiana (not California) law, or alternatively, Plaintiffs lack standing and otherwise fail to state a claim. As to the
second, third, and fifth claims for violation of RICO, conspiracy to violate RICO, and fraud, Wells Fargo contends those claims are not pled with particularity and, as to RICO, Plaintiffs lack standing. Finally, Wells Fargo argues that Plaintiffs allege a valid and enforceable contract in the SAC and thus the fourth claim for unjust enrichment is unavailable.
Plaintiffs oppose all of these arguments and request leave to amend if the Court dismisses any claim. The Court addresses each claim in turn.
Pursuant to Fed.R.Civ.P. 12(b)(6), a complaint may be dismissed against a defendant for failure to state a claim upon which relief may be granted against that defendant. Dismissal may be based on either the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990); Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984). For purposes of evaluating a motion to dismiss, the court " must presume all factual allegations of the complaint to be true and draw all reasonable inferences in favor of the nonmoving party." Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). Any existing ambiguities must be resolved in favor of the pleading. Walling v. Beverly Enters., 476 F.2d 393, 396 (9th Cir. 1973).
However, mere conclusions couched in factual allegations are not sufficient to state a cause of action. Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986); see also McGlinchy v. Shell Chem. Co., 845 F.2d 802, 810 (9th Cir. 1988). The complaint must plead " enough facts to state a claim [for] relief that is plausible on its face." Bell Atlantic. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A claim is plausible on its face " when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Thus, " for a complaint to survive a motion to dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009). Courts may dismiss a case without leave to amend if the plaintiff is unable to cure the defect by amendment. Lopez v. Smith, 203 F.3d 1122, 1129 (9th Cir. 2000).
A. First Claim: UCL Claim
1. Choice of Law: California versus Louisiana Law
California choice of law rules apply albeit the parties focus on different tests under California law. (Mot. at 5; Opp. at 6.)
Wells Fargo's analysis is contractual and focuses on the choice of law provision in the mortgage documents. In that situation, Nedlloyd Lines B.V. v. Superior Court, 3 Cal.4th 459, 465- 66, 11 Cal.Rptr.2d 330, 834 P.2d 1148 (1992) sets forth the test for determining the enforceability of arm's length contractual choice of law provisions. The court must first examine whether the party advocating the provision has met its burden of establishing the claims fall within its scope. Washington Mutual Bank, FA v. Superior Court, 24 Cal.4th 906, 915-16, 103 Cal.Rptr.2d 320, 15 P.3d 1071 (2001) (confirming that Nedlloyd should be applied to class claims subject to enforceable choice of law agreements). If the claims fall within the scope of the choice of law provision, then the court must " determine either: (1) whether the chosen state has a substantial relationship to the parties or
their transaction, or (2) whether there is any other reasonable basis for the parties' choice of law." Nedlloyd, 3 Cal.4th at 466; Washington Mutual, 24 Cal.4th at 916. If neither (1) or (2), supra, is met, then the court need not enforce the parties' choice of law. On the other hand, if either (1) or (2) is met, the court " must next determine whether the chosen state's law is contrary to a fundamental policy of California." Nedlloyd, 3 Cal.4th at 466 (emphasis in original); Washington Mutual, 24 Cal.4th at 916. If there is no conflict, the parties' choice of law shall be applied; but, if there is a fundamental conflict with California law, then the court must determine whether California has a materially greater interest than the chosen state on the particular issue. A choice of law provision shall not be enforced where California has a materially greater interest than the chosen state. Nedlloyd, 3 Cal.4th at 466; Washington Mutual, 24 Cal.4th at 916-17.
Wells Fargo offers three arguments. First, under the Nedlloyd test, it has met its burden of establishing a substantial relationship to the chosen state because Plaintiffs are residents of Louisiana, they own property there, and executed the contracts there. Wells Fargo contends Plaintiffs have not met their burden to show that the application of Louisiana law would violate a fundamental policy of California. (Mot. at 6-7.)
Second, Wells Fargo argues that even if the Court declines to enforce the choice of law provision, courts routinely decline to apply a state's laws to out-of-state transactions that do not involve a resident of the state. ( Id. at 7.) It asserts that merely having headquarters or principal place of business in San Francisco is an insufficient aggregation of contacts (which must exist to apply the UCL), particularly because the properties are located in Louisiana and the relevant conduct, including BPOs and inspections, otherwise occurred there. ( Id. at 8.)
Finally, even if the Court finds sufficient contacts to California have been alleged, Wells Fargo argues it prevails under a traditional choice of law " governmental interest" analysis. Wells Fargo identifies " crucial differences" between California's UCL and the Louisiana Unfair Trade Practices and Consumer Protection Law, LSA R.S. 51:401, et seq. (" Louisiana CPL" ), namely that: (i) the Louisiana CPL prohibits class actions; and (ii) California's UCL has a ...