California Court of Appeals, Third District, Placer
APPEAL from a judgment of the Superior Court of Placer County, No. SCV0028814 Michael A. Jacques, Court Commissioner.
United Law Center, John S. Sargetis and Jon L. Oldenburg for Plaintiffs and Appellants.
AlvaradoSmith, Theodore E. Bacon and Ricardo Diego Navarrette for Defendant and Respondent.
In this action arising from a home foreclosure, the trial court sustained, without leave to amend, defendant lender’s demurrer to plaintiff borrowers’ complaint. The complaint alleges causes of action for breach of contract, promissory estoppel, and fraud based on intentional misrepresentation or false promise. Specifically, plaintiffs allege that defendant, under a trial modification mortgage plan, offered to permanently modify the plaintiffs’ mortgage loan, provided plaintiffs complied with the terms of the trial modification plan by returning certain requested documents, making timely trial modification payments, and qualifying under a federal program that seeks to reduce home foreclosures, the Home Affordable Mortgage Program (hereafter, HAMP).
Two recent appellate decisions provide guidance on this subject, one from the California Court of Appeal, Fourth Appellate District, Division Three (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780 (West)) and the other from the federal Seventh Circuit Court of Appeals (Wigod v. Wells Fargo Bank, N.A. (7th.Cir. 2012) 673 F.3d 547 (Wigod)). These two decisions, which were issued after the trial court ruled here, concluded that when a borrower has alleged that he or she has complied with all the terms of a trial modification plan offered under HAMP—including making all required payments and providing all required documentation—and if the borrower’s representations on which the modification is based remain true and correct, the lender or loan servicer (collectively hereafter, the lender) must offer the borrower a good faith permanent modification; and if the lender fails to do so, the borrower may sue the lender, under state law, for breach of contract of the trial modification plan, among other causes of action.
We conclude plaintiffs have sufficiently alleged causes of action for breach of contract, promissory estoppel, and fraud based on false promise. Therefore, we shall reverse on those bases.
STANDARD OF REVIEW AND FACTUAL BACKGROUND
In reviewing a demurrer-based judgment of dismissal, we determine, independently of the trial court, whether, assuming the facts alleged in the complaint are true, a cause of action has been or can be stated. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318; Rogoff v. Grabowski (1988) 200 Cal.App.3d 624, 628.) We may also consider judicially noticeable matters and facts in the exhibits attached to the complaint. (Picton v. Anderson Union High School Dist. (1996) 50 Cal.App.4th 726, 732-733.)
The complaint at issue here, the plaintiffs’ first amended complaint, alleges the following facts.
In May 2004, plaintiffs Richard and Susan Bushell obtained a loan from then defendant Washington Mutual Bank to purchase a home in Roseville. Plaintiffs executed a deed of trust encumbering the property as security. Subsequently, defendant JPMorgan Chase Bank, N.A., acquired certain assets and liabilities of Washington Mutual, including plaintiffs’ loan and deed of trust (we will refer collectively to these defendants as Chase). In December 2008, plaintiffs defaulted on their loan.
In May 2009, plaintiffs received from Chase a trial modification plan (called a “Trial Period Plan” or TPP), which stated in part: “If you qualify under the federal government’s Home Affordable Modification [P]rogram [(HAMP)] and comply with the terms of the [trial modification plan], we will modify your mortgage loan and you can avoid foreclosure.” In the trial modification plan, Chase requested that plaintiffs (1) sign and return certain documents (the plan itself, if they accepted it; a financial hardship affidavit; a tax return disclosure form; and documentation to verify previously stated income), and (2) submit the first trial period payment (in the amount of $1, 420.31, calculated from income and loan information Chase already had and calculations Chase had already performed pursuant to HAMP guidelines). (See U.S. Dept. Treasury, HAMP Supplemental Directive No. 09-01, Apr. 6, 2009, pp. 2-5, 8-10, 14-15 (hereafter, Supplemental Directive 09-01).) Plaintiffs signed and provided all the requested documents and made the first trial period payment.
In June 2009, plaintiffs received a letter from Chase confirming the trial modification plan and specifying in part: “If you make all  trial period payments on time [under the trial modification plan] and comply with all of the applicable [HAMP] program guidelines, you will have qualified for a final [permanent] modification.” The letter also contained four coupons with which to return the trial modification payments, and instructed plaintiffs to continue making the trial modification payments after the first three in the event of a paperwork delay.
After making the first four trial period payments, plaintiffs inquired about the status of their loan modification. Chase advised them to continue making the trial payments. Plaintiffs did, making 26 trial modification payments between June 2009 and August 2011.
Plaintiffs contacted Chase multiple times between November 2009 and June 2010, inquiring about the status of their loan modification. Between November and December 2009, Chase indicated it was processing the paperwork. Then, on December 30, 2009, when plaintiffs again inquired, Chase told plaintiffs the loan modification had been denied “ ‘by the investor’ ” and Chase could not accept any more payments. In the ensuing months, plaintiffs requested written explanation, but received nothing. Plaintiffs called Chase and were told to stop making payments because Chase was “ ‘crunching the numbers’ ” for the modification and payment schedule, and additional payments at that point would skew the outcome. And then in June 2010, plaintiffs were told that their file had been reviewed and cleared to resume the trial modification payments, which plaintiffs resumed. In November 2010, plaintiffs received a letter from Chase requesting updated information. This was the first written communication from Chase since the trial modification plan provided to plaintiffs in May 2009 and the confirming letter sent in June 2009. Plaintiffs provided the requested information in person on December 3, 2010. The next written communication plaintiffs received from Chase was on January 27, 2011—a notice of trustee’s sale regarding the property (posted on their front door).
After Chase demurred to plaintiffs’ original complaint, plaintiffs filed their first amended complaint alleging (1) breach of contract, including breach of the implied covenant of good faith and fair dealing, (2) promissory estoppel, and (3) fraud—intentional misrepresentation and false promise.
The trial court, which ruled before West and Wigod were decided, sustained Chase’s demurrer without leave to amend and dismissed the case, finding: (1) as to breach of contract and the implied covenant of good faith and fair dealing—the trial modification plan was not, on its face, a binding contract for a loan modification; plaintiffs did not allege they qualified under HAMP; and the implied covenant theory fell with the lack of a contract; (2) as to promissory estoppel—the alleged promise was conditional rather than clear and unambiguous as required; and plaintiffs failed to allege detrimental reliance (damages) because monthly mortgage payments that plaintiffs were already obligated to make cannot constitute damages; and (3) as to fraud—plaintiffs failed to allege their facts with the requisite level of specificity, and similarly failed to allege detrimental reliance.
This appeal followed.
I. Plaintiffs State a Cause of Action for Breach of Contract Including Breach of the Implied Covenant ...