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Gerbery v. Wells Fargo Bank, N.A.

United States District Court, Ninth Circuit

July 31, 2013

JOSEPH GERBERY, et al., Plaintiffs,
WELLS FARGO BANK, N.A., et al., Defendants.


MICHAEL M. ANELLO, District Judge.

On April 11, 2013, Plaintiffs Joseph and Adelaida Gerbery filed a First Amended Complaint ("FAC") against Defendant Wells Fargo Bank, N.A. ("Wells Fargo"), alleging unfair business practices in violation of California Business and Professions Code sections 17200 et seq., fraud, negligent misrepresentation, promissory estoppel, and breach of contract. Wells Fargo now moves to dismiss Plaintiffs' FAC. The Court GRANTS Wells Fargo's motion to dismiss all claims with leave to amend.


Plaintiff Joseph Gerbery is a disabled veteran who is currently employed by the Navy. [FAC ¶¶ 32, 33.] On February 21, 2007, Joseph and his wife, Adelaida Gerbery, borrowed $396, 000 from World Savings Bank, FSB. [FAC ¶ 15; Exh. B.] The loan was secured by a deed of trust recorded against 808 Plaza Taxco, San Diego, California 92114. [FAC ¶ 1; Exh. A; Doc. No. 10 at 1-2.] Plaintiffs allege that Wells Fargo represented their mortgage would be a 30-year fixed term, and that their monthly payments would not under any circumstances exceed $1450 per month for the life of the loan. [FAC ¶ 19.] Wells Fargo, on the other hand, asserts that Plaintiffs' loan was memorialized by an adjustable rate note. [Doc. No. 10 at 1.] The note is not included in the exhibits filed by either party.

On February 18, 2009, the U.S. Treasury Secretary and the Director of the Federal Housing Finance Agency announced the Making Home Affordable ("MHA") program. [FAC ¶ 6.] MHA consists of two subprograms, known as the Home Affordable Refinance Program ("HARP") and the Home Affordable Modification Program ("HAMP"). Id. HAMP is backed by federal funds allocated to the Troubled Asset Relief Program ("TARP"). [FAC ¶ 7.] Any loan servicer that accepts TARP funds is required to participate in HAMP. Id. Wells Fargo is a loan servicer that accepts TARP funds and therefore its participation in HAMP is mandatory. Id.

A loan servicer that participates in HAMP is also a party to the Servicer Participation Agreement ("SPA"), which requires servicers to collect income and hardship information to determine whether a borrower is eligible for a loan modification.[1] [FAC ¶ 9.] If appropriate, the servicer can offer the borrower a "Trial Period Plan, " and if the trial period is successfully completed, the servicer may offer the borrower a permanent modification. Id.

By 2011, Plaintiffs had learned that Wells Fargo engaged in alleged illicit activity, including: misrepresenting Plaintiffs' ability to repay the loan; falsely inflating Plaintiffs' income without Plaintiffs' knowledge or consent so they could qualify for the loan; repeatedly representing to Plaintiffs that they qualified for a loan modification; and representing to Plaintiffs that modification of their loan was imminent. [FAC ¶¶ 20, 21, 27, 30.]

Plaintiffs also allege Wells Fargo made material misrepresentations regarding the terms of their loan, including (i) that the mortgage was a fixed interest rate loan when it was actually a negative amortization loan; (ii) failing to mention that Plaintiffs' obligations would eventually realize an increase of 242% from $1450 to $3530.40 per month; and (iii) neglecting to notify Plaintiffs that their loan subjected them to a three-year prepayment penalty, thereby causing Plaintiffs to forgo alternative loans with more favorable terms. [FAC ¶ 23.]

On February 9, 2012, the Department of Justice ("DOJ") issued a press release announcing a $25 billion joint federal-state civil settlement against the nation's five largest banks and mortgage servicers, which included Wells Fargo.[2] [FAC ¶ 12.] Violations alleged by the DOJ and 49 state attorneys general included deceptive practices in the offering of loan modifications and failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages. Id.

Plaintiffs' first cause of action alleges that Wells Fargo violated California's Business and Professions Code sections 17200 et seq. by engaging in unfair business practices. [FAC ¶¶ 36-39.] Wells Fargo's alleged unfair business practices include: falsely promising Plaintiffs that Wells Fargo would accept and fairly review Plaintiffs' request for a loan modification; falsely promising Plaintiffs that they qualified for and would obtain a loan modification; purposefully understaffing the departments that handled loan modifications; and intentionally staffing those same departments with employees who were unable, incompetent, or directed not to cooperate with borrowers' requests. [FAC ¶ 37.] As a result of this conduct, Plaintiffs claim damages that include the risk of foreclosure on their property and the loss of opportunities to obtain an alternative loan with more favorable terms.

Plaintiffs' second cause of action alleges that Wells Fargo engaged in fraud by knowingly making material misrepresentations concerning the terms of Plaintiffs' loan. [FAC ¶¶ 40-45.] The alleged misrepresentations include Plaintiffs' income, conditions of repayment of the loan, duration of the loan, the interest rate on the loan, and promises to modify the terms of Plaintiffs' loan. [FAC ¶ 42.] As a result of their reliance on these misrepresentations, Plaintiffs assert that they lost opportunities to obtain alternative lending with more favorable terms. [FAC ¶¶ 43-44.]

Plaintiffs' third cause of action alleges negligent misrepresentation by Wells Fargo. [FAC ¶¶ 46-50.] Plaintiffs allege that Wells Fargo represented to them that a loan modification would only be possible if they defaulted on their loan. [FAC ¶ 47.] Plaintiffs allege that Wells Fargo intended to induce Plaintiffs to miss mortgage payments and eventually default on their loan so that Wells Fargo could initiate the foreclosure process. [FAC ¶ 49.]

Plaintiffs' fourth cause of action alleges promissory estoppel. [FAC ¶¶ 51-57.] They allege Wells Fargo made certain promises to Plaintiffs, including promises to modify their loan. [FAC ¶ 52.] As a result of their reliance on Wells Fargo's promises, Plaintiffs are now at risk of foreclosure on their home and have passed on opportunities to secure alternative lending with more favorable terms. [FAC ¶¶ 55, 56.]

Plaintiffs' fifth cause of action alleges breach of contract as a third party beneficiary to the SPA and to HAMP. [FAC ¶¶ 58-62.] They allege Wells Fargo breached the SPA and HAMP by approving them for a loan modification but not actually proceeding with the modification. [FAC ¶ 60.]

Plaintiffs allege that Wells Fargo intends to foreclose on their property. [FAC ¶ 34.] Plaintiffs also assert that they are current with all of their loan payments, have never missed a payment, and are willing and able to make reasonable and affordable loan payments. [FAC ¶¶ 33-35.]


A. Motion to Dismiss pursuant to FRCP 12(b)(6)

A pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief...." Fed.R.Civ.P. 8(a)(2). However, plaintiffs must also plead "enough facts to state a claim to relief that is plausible on its face." Fed.R.Civ.P. 12(b)(6); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The plausibility standard thus demands more than a formulaic recitation of the elements of a cause of action, or naked assertions devoid of further factual enhancement. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Instead, the complaint "must contain allegations of underlying facts [sufficient] to give fair notice and to enable the opposing party to defend itself effectively." Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

When ruling on a motion to dismiss, the Court may consider the facts alleged in the complaint, documents attached to the complaint, and matters of which the Court takes judicial notice. Lee v. City of L.A., 250 F.3d 668, 688-89 (9th Cir. 2001). The Court must first identify pleadings which are no more than "legal conclusions" and, as such, are not entitled to the assumption of truth. Iqbal, 556 U.S. at 680. The Court then analyzes the complaint and accepts all remaining factual allegations as true, while drawing all reasonable inferences in favor of the nonmoving party. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005).

To survive a motion to dismiss, a complaint must contain sufficient factual content to allow the Court to reasonably infer that the defendant is liable for the misconduct alleged. Iqbal, 556 U.S. at 678. The factual allegations must be definite enough to raise a right to relief above the speculative level. Twombly, 550 U.S. at 555. If the complaint pleads facts that are merely consistent with a defendant's liability, it "stops short of the line between possibility and plausibility of entitlement to relief." Twombly, 550 U.S. at 557.

Finally, leave to amend should be granted unless the pleading could not possibly be cured by the allegation of additional or other facts. Knappenberger v. City of Phoenix, 566 F.3d 936, 942 (9th Cir. 2009).

B. Claims for Fraud Uunder FRCP 9(b)

In alleging fraud, the plaintiff must "state with particularity the circumstances constituting fraud." Fed.R.Civ.P. 9(b). Failure to satisfy this heightened pleading requirement can result in dismissal of the claim. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003).

In general, the plaintiff's averments of fraud must be "specific enough to give defendants notice of the particular misconduct... so that they can defend against the charge and not just deny that they have done anything wrong." Id. at 1106. Specifically, plaintiffs are required to supplement allegations of fraud with "the who, what, when, where, and how" of the misconduct charged or, in other words, to specify the time, place, and content of the alleged misrepresentation, in addition to why the statement in question is false or misleading. Id. at 1106-07.


A. Wells Fargo's Request for Judicial Notice

In support of its motion to dismiss, Wells Fargo requests that the Court take judicial notice of the following documents:

1. Deed of Trust dated February 21, 2007, and recorded in the official records of the San Diego County Recorder's Office on March 8, 2007;
2. Certificate of Corporate Existence of World Savings Bank, FSB, dated April 21, 2006, issued by the Office of Thrift Supervision, Department of the Treasury ("OTS");
3. Letter dated November 19, 2007, on the letterhead of the OTS authorizing a name change from World Savings Bank, FSB to Wachovia Mortgage, FSB ("Wachovia");
4. Corporate Charter of Wachovia Mortgage, FSB, effective December 31, 2007, and signed by the Director of the OTS;
5. Official Certification of the Comptroller of the Currency stating that effective November 1, 2009, Wachovia converted to Wells Fargo Bank Southwest, N.A., which then merged with and into Wells Fargo Bank, N.A.;
6. Printout from the website of the Federal Deposit Insurance Corporation dated February 19, 2013, showing the history of World Savings Bank, FSB and its merger into Wells Fargo Bank, N.A.

A court may take notice of adjudicative facts not subject to reasonable dispute that "can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed.R.Evid. 201(b)(2).

The exhibits submitted by Wells Fargo are government and public documents which each bear a government seal, the signature of a government official, or both. The accuracy of the exhibits is thus not subject to reasonable dispute, and they are the proper subjects of judicial notice. Courts have taken judicial notice of similar documents. See Appling v. Wachovia Mortg. FSB, 745 F.Supp.2d 961, 968 (N.D. Cal. 2010) (taking judicial notice of the certificate of corporate existence of World Savings Bank, FSB; a letter from OTS reflecting the name change from World Savings Bank, FSB, to Wachovia Mortgage, FSB; and Wachovia Mortgage's corporate charter); Rodriguez v. Wells Fargo Bank, N.A., 2011 WL 2946381, at *2 (E.D. Cal. July 21, 2011) (taking judicial notice of deed of trust); Khan v. World Sav. Bank, FSB, 2011 WL 133030, at *1 (N.D. Cal. Jan. 14, 2011) (taking judicial notice of the Official Certification of the Comptroller of the Currency regarding Wachovia Mortgage, FSB and Wells Fargo Bank); Paralyzed Veterans of Am. v. McPherson, 2008 WL 4183981, at *5-6 (N.D. Cal. Sept. 9, 2008) (taking judicial notice of information appearing on official government websites). Accordingly, The Court GRANTS Wells Fargo's unopposed request for judicial notice.

B. Threshold Issues Raised by Wells Fargo

Wells Fargo raises a series of threshold issues, which Court's first addresses before proceeding ...

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