United States District Court, E.D. California
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[Copyrighted Material Omitted]
For Charles Alimena, Cheryl Alimena, Plaintiffs: John Steve Sargetis, Stephen J. Foondos, United Law Center, Roseville, CA.
For Vericrest Financial, Inc., LSF7 NPL VI TRUST, Lone Star U.S. Acquisitions, LLC, Defendants: Regina J. McClendon, Sally Weiss Mimms, Locke Lord LLP, San Francisco, CA.
For CitiMortgage, Inc., CR Title Services, Inc., Defendants: Claudia Lee Williams, Peter J. Van Zandt, LeClairRyan LLP, San Francisco, CA.
LAWRENCE K. KARLTON, SENIOR UNITED STATES DISTRICT JUDGE.
Plaintiffs Charles and Cheryl Alimena sue defendants Citimortgage, Inc. (" Citimortgage" ) and C.R. Title Services, Inc. (" C.R. Title," and together with Citimortgage, the " Citi Defendants" ) and defendants Vericrest Financial, Inc. (" Vericrest" ), Lone Star U.S. Acquisitions, LLC (" Lone Star" ), and LSF7 NPL VI Trust (" Trust," and together with Vericrest and Lone Star, the " Vericrest Defendants" ), alleging that Defendants acted unlawfully in failing to modify their home mortgage and subsequently initiating foreclosure proceedings. Plaintiffs commenced this action on October 6, 2011 by filing a complaint in Sacramento Superior Court. On April 6, 2012, shortly after being named as a " Doe" defendant, Lone Star removed the action to federal court on the basis of diversity jurisdiction. (ECF No. 1.) By order dated December 20, 2012, the court dismissed Plaintiffs' First Amended Complaint without prejudice. (ECF No. 40.) On January 17, 2013, Plaintiffs filed a Second Amended Complaint. (" SAC," ECF No. 41.) The Citi Defendants and Vericrest Defendants now
move to dismiss the SAC under Fed.R.Civ.P. 12(b)(6).
For the reasons set forth below, the motions to dismiss will be granted in part and denied in part.
Plaintiffs' home is located at 4497 McRoberts Drive in Mather, California. (SAC ¶ 1.) On July 25, 2005, a deed of trust was recorded against the property, which identified Plaintiffs as the " Borrower," Wilson Resources, Inc. as the " Lender," First American Title as the " Trustee," and Mortgage Electronic Registration Systems, Inc. (" MERS" ) as both a " nominee for Lender and lender's successors and assigns" and as the " beneficiary" under the Deed of Trust. (Citi Defendants' Req. for Jud. Not. (" Citi RJN" ) Ex. A, ECF No. 45-1; Vericrest Defendants' Req. for Jud. Not. (" Vericrest RJN" ) Ex. 1, ECF No. 43.) 
In early 2010, Plaintiffs contacted defendant Citimortgage, seeking a modification of their home loan. (SAC ¶ 26.) Citimortgage sent Plaintiffs information regarding the Home Affordable Modification Program (" HAMP" ).  (SAC ¶ 27.) On February 12, 2010, Plaintiffs completed and submitted their HAMP application form, along with required documentation. (SAC ¶ 31.) Soon thereafter, Plaintiffs received four letters from Citimortgage confirming that they were starting a Home Affordable Modification Trial Period Plan (" First TPP" ).  (SAC ¶ ¶ 33, 34.) Under the terms of the First TPP, Plaintiffs were to submit certain documents and make three monthly payments of $1,667.00, beginning on March 1, 2010. (SAC ¶ 33, 35.)
According to Plaintiffs, the letters from Citimortgage provided that Plaintiffs could call Citimortgage and get an extension of the payment deadline, as they had been given short notice of the commencement of the trial modification. Plaintiffs did so and were given an extension. (SAC ¶ 35.) They made the three required payments on March 8, 2010, April 6, 2010, and May 18, 2010, within the timeframe permitted by the extension. (SAC ¶ ¶ 36, 39, 49.) Plaintiffs allege that they also timely submitted every document ever requested by Citimortgage. (SAC ¶ 70.)
During the April - June 2010 period, a dizzying series of communications ensued. On April 5, 2010, April 17, 2010, May 13, 2010, May 17, 2010, and May 22, 2010, Plaintiffs received delinquency letters from Citimortgage. (SAC ¶ ¶ 38, 41, 46, 48, 51.) On April 27, 2010, Plaintiffs received an email from Citimortgage demanding more documents. (SAC ¶ 42.) On a May 3, 2010 phone call, a Citimortgage representative informed Plaintiffs that he needed their March and April bank statements, as
well as a profit & loss statement.  (SAC ¶ 44.) On May 10, 2010, Plaintiffs received a letter acknowledging that Citimortgage had received all of the documents requested in connection with their HAMP application. (SAC ¶ 45.) On May 24, 2010, May 28, 2010, and June 4, 2010, Plaintiffs received letters again acknowledging that Citimortgage had received all requested documents from Plaintiffs, but indicating that it might need more documents in the future. (SAC ¶ 53.) Plaintiffs also repeatedly called Citimortgage in order to ascertain the status of their loan modification. They received no helpful information, and were frequently told to call back in a week. On many of these calls, Plaintiffs were cut off after being placed on hold for long intervals. (SAC ¶ ¶ 37, 39, 40, 42-44, 47.)
On June 11, 2010, Plaintiffs made a fourth trial payment of $1,667.00. They had not yet received confirmation of a loan modification. (SAC ¶ 54.)
On June 15, 2010, Plaintiffs called Citimortgage to find out the status of their HAMP application, and were told to submit a profit & loss statement within two weeks. (SAC ¶ 55.) On June 28, 2010, they did so. (FAC ¶ 57.) Two days later, they received a call from an individual at Citimortgage's Outreach Center, who told them that Citimortgage was still waiting for the statement. (SAC ¶ 58.) When Plaintiffs told him that they had faxed it in, the Citimortgage representative checked the records and acknowledged that Citimortgage had received it. He then informed Plaintiffs that their HAMP application had been canceled, but was unable to explain why. He advised Plaintiffs to open a dispute with Citimortgage regarding the cancellation. (Id.) Finally, on August 10, 2010, Plaintiffs received a letter from Citimortgage, which explained that they were not approved for a loan modification under the First TPP because they had failed to provide requested documents. (SAC ¶ 70.)
On July 5, 2010, Plaintiffs called Citimortgage to open a dispute; they were told they could not, but could submit another HAMP application if they wished. (SAC ¶ 59.) After repeated phone calls, a loan modification application package arrived. (SAC ¶ 67.) On July 28, 2010, Plaintiffs submitted this application; a Citimortgage representative subsequently confirmed its receipt. (SAC ¶ 68.)
On July 8, 2010, Plaintiffs received a letter stating that their loan was in default, and on July 23, 2010, they received another letter demanding payment of the arrearage on their account. (SAC ¶ ¶ 61, 67.)
Between July and September, the parties exchanged various emails, letters, and phone calls. On August 19, 2010, Plaintiffs were informed by phone that their loan modification application was going to be submitted to underwriting. (SAC ¶ 85.) On September 9, 2010, a Citimortgage representative informed Plaintiffs by phone that the company had received all of the requested documents; but on September 16 and September 21, respectively, Plaintiffs received an email and a letter demanding additional documents. (SAC ¶ ¶ 78, 80, 81.) They complied with these demands. (SAC ¶ 81.) On October 1, 2010, Plaintiffs were again informed that their loan modification application was going to be submitted to underwriting. (SAC ¶ 85.)
In late October, Plaintiffs received a Notice of Default and an Election to Sell under Deed of Trust (" Notice of Default" ). (SAC ¶ 93.) They called Citimortgage, and were informed that their HAMP application
had been denied due to inadequate income. (Id.) Plaintiffs ultimately determined that Citimortgage had failed to take into account their profit & loss statement, which they had submitted repeatedly, both as part of their first and second loan modification applications. (SAC ¶ 94.) A Citimortgage representative, Sheila Cotell, told Plaintiffs they could not appeal the denial, but could submit another loan modification application. (SAC ¶ 95.) On November 1, 2010, they provided Cotell with financial information over the telephone in support of a new loan modification application. (SAC ¶ 97.) Cotell told Plaintiffs that they would qualify for a loan modification if they sold their 2006 Chrysler 300C. (Id.) They did so. Because of the speedy sale, they received much less than the car's Blue Book value. (SAC ¶ 98.)
As of November 2, 2010, Citimortgage's website showed that Plaintiffs were to receive a loan modification with the following terms: 5/1 Adjustable Rate Mortgage, amortized over 40 years, with an initial annual interest rate of 2.00% and an approximately $27,000 reduction in principal. The monthly payment would be $1,749.15. (SAC ¶ 100.)
In mid-November 2010, Plaintiffs submitted documents for another loan modification application. (SAC ¶ 102.) For the next two-and-a-half months, Plaintiffs exchanged numerous phone calls, emails, and Internet " chats" with Citimortgage as they sought to verify whether Citimortgage had received the required documents and if their modification had been approved. (SAC ¶ ¶ 104, 106, 108-112, 115-120.) Plaintiffs were informed at various times that their application had been approved and that it had been denied. (SAC ¶ ¶ 124, 125, 128.)
Finally, on February 7, 2011, Plaintiffs received a letter from Citimortgage informing them that they were entering a Trial Period Plan (" Second TPP" ). (SAC ¶ 130.) Attached to the FAC as Exhibit 8 are a copy of a letter from Citimortgage Customer Service to Plaintiffs describing the required trial period payments; a set of frequently asked questions regarding the TPP; a document entitled " Additional Trial Period Plan Information and Legal Notices" ; and three payment slips to be mailed in with the trial period payments. The Second TPP required Plaintiffs to make three monthly payments of $1,687.00, beginning on March 1, 2011. (Id.) They made their first payment. (SAC ¶ 135.)
On February 24, 2011, Plaintiffs were informed by Citimortgage, on a telephone call, that the trustee's sale of their home had been postponed. (SAC ¶ 134.) On March 2, 2011, they were informed that the servicing of their loan had been transferred to defendant Vericrest. (SAC ¶ 135.)
On March 16, 2011, Plaintiffs received a notice from Vericrest stating that defendant Trust now owned their note, and Vericrest was their loan servicer. (SAC ¶ 140.) Plaintiffs called Vericrest that same day, and were informed that Citimortgage had reported to Vericrest that Plaintiffs' HAMP modification had been canceled because they (Plaintiffs) had defaulted. (Id.)
On March 25, 2012, Vericrest notified Plaintiffs over the telephone that their account should have been noted as being subject to a HAMP modification, and to make their second trial payment. (SAC ¶ 142.) Plaintiffs did so. (SAC ¶ 143.)
On March 28, 2011, Plaintiffs called Vericrest, and were told that they did not qualify for HAMP, and that Vericrest was not bound by any modification offered by Citimortgage. (SAC ¶ 144.) On April 4,
2011, their second payment was returned by mail, along with a statement that the payment was refused due to " insufficient funds to cure default." (SAC ¶ 146.) The next day, Plaintiffs called Vericrest, and were told they would have to re-apply for a loan modification. (SAC ¶ 147.)
On April 8, 2011, Plaintiffs filed for Chapter 13 bankruptcy protection. (SAC ¶ 148.)
On April 15, 2011, a notice was placed on Plaintiffs' home that read: " This Property Has Gone Through Foreclosure And Is Now Owned By The Mortgage Holder." (SAC ¶ 150.) On April 18, 2011, Vericrest served Plaintiffs with a three-day notice to quit the premises, and in so doing, allegedly violated the bankruptcy stay. (SAC ¶ 151.)
Plaintiffs allege that, since July 2005, defendant Lone Star has been the sole owner of the promissory note securing their home loan (they were informed of this fact by a Citimortgage employee on March 30, 2011) (SAC ¶ 145) and the beneficiary of Plaintiffs' deed of trust (SAC ¶ 153). Plaintiffs also allege that Lone Star, along with Trust, is responsible for Citimortgage's and Vericrest's actions as loan servicers.  (SAC ¶ 153.) Plaintiffs further allege that the transfer of servicing of their home loan from Citimortgage to Vericrest was for the purpose of denying them a loan modification. (SAC ¶ 154.) Finally, Plaintiffs allege that Lone Star owns Citimortgage, Trust, and Vericrest. (Id.)
The SAC asserts causes of action for deceit, civil conspiracy, promissory estoppel, breach of contract, breach of the covenant of good faith and fair dealing, bad faith denial of contract, wrongful foreclosure under Cal. Civ. Code § 2924, and violations of Cal. Bus. & Prof. Code § 17200.
II. STANDARD ON MOTION TO DISMISS UNDER FED R. CIV. P. 12(b)(6)
A dismissal motion under Fed.R.Civ.P. 12(b)(6)  challenges a complaint's compliance with federal pleading requirements. Under Rule 8(a)(2), a pleading must contain a " short and plain statement of the claim showing that the pleader is entitled to relief." The complaint must give the defendant " 'fair notice of what the ... claim is and the grounds upon which it rests.'" Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).
To meet this requirement, the complaint must be supported by factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Moreover, this court " must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007). 
" While legal conclusions can provide the framework of a complaint," neither legal conclusions nor conclusory statements are themselves sufficient, and such statements are not entitled to a presumption of truth. Iqbal, 556 U.S. at 679. Iqbal and Twombly therefore prescribe a two-step process for evaluation of motions to dismiss. The court first identifies the non-conclusory factual allegations, and then determines whether these allegations, taken as true and construed in the light most favorable to the plaintiff, " plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at 679.
" Plausibility," as it is used in Twombly and Iqbal, does not refer to the likelihood that a pleader will succeed in proving the allegations. Instead, it refers to whether the non-conclusory factual allegations, when assumed to be true, " allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."
Iqbal, 556 U.S. at 678. " The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 557).  A complaint may fail to show a right to relief either by lacking a cognizable legal theory or by lacking sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).
A. Request for Judicial Notice
As set forth in its December 20, 2012 Order, the court previously took judicial notice of the following documents, and will do so again.
1. Documents recorded with the Sacramento County Recorder's Office: a Deed of Trust recorded on July 25, 2005; an Assignment of Deed of Trust recorded on October 19, 2010; a Substitution of Trustee recorded on October 19, 2010; a Notice of Default and Election to Sell Under Deed of Trust recorded on October 19, 2010; a Notice of Trustee's Sale recorded on January 20, 2011; an Assignment of Deed of Trust recorded on April 19, 2011; a Trustee's Deed Upon Sale recorded on April 19, 2011; a Notice of Rescission of Trustee's Deed Upon Sale recorded on May 6, 2011; and a Notice of Trustee's Sale recorded on October 11, 2011. (Citi RJN Exs. A-H, L, ECF No. 45-1; Vericrest RJN Exs. 1-7, 11, 13, ECF No. 43, 43-1.)
2. Documents filed in the United States Bankruptcy Court for the Eastern District of California, No. 11-28898 (" Bankruptcy Case" ), a Chapter 13 petition filed by Plaintiffs as joint debtors: the electronic case docket; Plaintiffs' bankruptcy petition; an amended bankruptcy petition;  Plaintiffs' statement of income and summary of schedules; and an order of the bankruptcy court dismissing Plaintiffs' case. (Citi RJN, Exs. I, J, K; Vericrest RJN, Exs. 8-10, 12, 14.)
Plaintiffs object to the court taking judicial notice of the contents of these documents. The court is well aware of the limitations on its ability to accept the truth of matters asserted in the materials of which it takes judicial notice, and will proceed accordingly. See, generally, 21B Charles Alan Wright & Arthur Miller, Federal Practice and Procedure § 5106.4 (" Facts Judicially Noticeable; Indisputability-- 'Ascertainable Facts'--Court Records" ) (2d ed. 2012).
B. Allegations of ownership and control
Defendants dispute Plaintiffs' allegations as to corporate ownership and control. They deny that Lone Star owns Citimortgage, Trust, and Vericrest. They also deny that Citimortgage and Vericrest are owned by the same entity. (Vericrest Mot. Dismiss at 9 n.4; Citi Mot. Dismiss at 8 n.1.) In support of this position, the Vericrest Defendants request that the court take judicial notice of the following documents:
1. A publicly-available list of subsidiaries of Citigroup, Inc. filed with the Securities and Exchange Commission (" SEC" ).
2. A document prepared by Standard & Poor's entitled " Servicer Evaluation: Vericrest Financial Inc."
3. A " Hierarchy Report" for CIT Group, Inc., produced by the National Information Center,  using data from the Federal Reserve System, publicly available at http://www.ffiec.gov
4. The Registration/Reporting Status for Lone Star U.S. Acquisitions, LLC, publicly available on the SEC website ...