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Fevinger v. Bank of America N.A.

United States District Court, N.D. California, San Jose Division

March 31, 2014



PAUL S. GREWAL, Magistrate Judge.

Before the court is Defendants Bank of America, N.A. and U.S. Bank N.A. Trustee's motion to dismiss all claims in the first amended complaint ("FAC").[1] Plaintiff Rachel Fevinger opposes.[2] The parties appeared for a hearing.[3] After considering the arguments, the court GRANTS Defendants' motion but only IN-PART.


In September 2005, Fevinger obtained a loan in the amount of $650, 000.00 to finance property located at 3583-3585 Mauricia Avenue, Santa Clara, CA 95051.[4] The Deed of Trust ("DOT") identifies Fevinger as the borrower, American Mortgage Express Corp. as the lender, Fidelity National Title as trustee, and Mortgage Electronic Registration Systems, Inc. as nominee and beneficiary.[5] On September 22, 2005, Fevinger obtained a home equity line of credit in the amount of $97, 000.00 secured by a DOT and assignment of rents.[6] On August 30, 2011, MERS recorded an assignment of the beneficial interest of the DOT to U.S. Bank, National Association as Trustee for Wamu Mortgage Pass-Through Certificates, Series WMALT 2006-AR1 ("U.S. Bank").[7] Bank of America then acted as the servicer of the loan.[8]

Fevinger stayed current on her loan from 2005 to 2009.[9] In 2009 the loan payment amounts increased[10] and Fevinger missed a few payments.[11] Fevinger received correspondence from Bank of America inviting her to consider modifying her loan agreement.[12] In August of 2010 she reached out to Bank of America, and was informed that she was a good candidate for loan modification. Fevinger alleges she was "ready, willing, and able" and "interested in reinstating" her loan, but was "lured" into awaiting a new payment schedule.[13]

Around August 30, 2010 Fevinger applied for a loan modification, but did not hear anything within a few weeks.[14] Fevinger called the Bank of America number from the correspondence and was told over the phone that it was U.S. Bank's "policy not to foreclose on borrowers who had submitted complete loan modification applications and we're awaiting a decision."[15] Fevinger called the same Bank of America phone number a few weeks later, but was unable to obtain any information about the status of her application.[16] In October of 2010 Fevinger wrote a letter asking that Bank of America give her an update on the status of her application.[17] In November of 2010 Bank of America wrote back that it was still reviewing her application and would provide a more detailed response within twenty days.[18] After Fevinger did not hear back within twenty days, she called to check the status of her application and was instructed to reapply.[19]

Fevinger asked if she could resubmit her old application, but was told to await new application materials from Bank of America.[20] In December of 2010 Fevinger sought a reinstatement calculation but a "phone representative" told her to await new loan modification application materials and was reassured that her loan would not be foreclosed while she was awaiting a loan modification.[21] The new loan modification application materials finally arrived in February 2011.[22] Fevinger "immediately submitted" all requested documentation in February, waited a "short time" and began to regularly follow up on the status of her application.[23] In March or April of 2011 Bank of America informed Fevinger that her application was being reviewed.[24] On April 4, 2011, Bank of America informed Fevinger that several pages of her modification were missing from her application.[25] Fevinger responded by "immediately" faxing the requested documents, but they were not received.[26] She re-faxed the pages on May 2 and May 3, 2011, and on May 6, 2011, Bank of America acknowledged receipt.[27]

On May 13, 2011 Fevinger called to "follow up" on the status of her application and alleges that she "was still ready willing and able to catch up with her mortgage" payments.[28] Fevinger continued to follow up on the status of her application in July 2011 and was informed on July 19, 2011, that she needed "to provide updated financials."[29] On August 9, 2011, Fevinger spoke with a bank representative and was informed that her application was still not "complete because it lacked utility bills and a required letter regarding HOA fees."[30] Fevinger alleges she had already submitted these documents.[31]

Over the course of August and September different Bank of America representatives told Fevinger to submit additional documents for review.[32] In October Fevinger received two letters from Bank of America informing her that her loan modification application could not be reviewed because she had not submitted paperwork regarding her social security benefits, retirement benefits, bank statements and tax returns.[33] In November 2011, Fevinger received a Home Affordable Mortgage Program ("HAMP") denial letter.[34]

Following her HAMP denial, Fevinger contacted Bank of America and was directed that "the best way to rectify" the denial of her loan modification application was to refile a new application.[35] At this point, Fevinger could no longer afford to pay off the "mounting arrears, late fees and attorney's fees" and "was very much at the mercy" of the bank.[36] During 2012 Fevinger "was forced to jump through hoops" in her contact with several Bank of America representatives and in September received a notice of default and subsequent denial of loan modification because her arrears had grown too large.[37]

On August 15, 2012, U.S. Bank substituted ReconTrust Company, N.A. as trustee under the DOT.[38] On September 6, 2012, ReconTrust recorded a notice of default because of Fevinger's arrears of $196, 431.68.[39] A notice of trustee's sale was recorded by ReconTrust on December 12, 2012.[40] No foreclosure sale of the property has occurred.

Fevinger now brings claims for (1) breach of the implied covenant of good faith and fair dealing, (2) breach of contract, (3) negligent misrepresentation, (4) fraud, (5) violation of Cal. Civil Code § 2924 and (6) unfair competition.[41]


A. Motion to Dismiss

A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief."[42] When a plaintiff fails to proffer "enough facts to state a claim to relief that is plausible on its face, " the complaint may be dismissed for failure to state a claim upon which relief may be granted.[43] A claim is facially plausible "when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."[44] Under Fed.R.Civ.P. 12(b)(6), "dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory."[45] Dismissal with prejudice and without leave to amend is appropriate if it is clear that the complaint could not be saved by amendment.[46]

B. Breach of Contract

"Under California law, the elements of a breach of contract claim are: (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) resulting damage to plaintiff."[47] It is "well settled that if an essential element' of a promise is reserved for the future agreement of both parties, the promise gives rise to no legal obligation until such future agreement is made.'"[48] "To establish damages, a plaintiff must establish appreciable and actual damage.'"[49] "Nominal damages, speculative harm, or threat of future harm do not suffice to show legally cognizable injury."[50] "In addition, a contract requires an offer articulating the terms of the agreement and an acceptance that mirrors the offer."[51]

C. Breach of Implied Covenant of Good Faith and Fair Dealing

"It has long been recognized in California that every contract contains an implied covenant of good faith and fair dealing that neither party will injure the right of the other party to receive the benefits of the agreement."[52] "The covenant protects the express covenants or promises of the contract."[53] The "factual elements necessary to establish a breach of the covenant of good faith and fair dealing are: (1) the parties entered into a contract; (2) the plaintiff fulfilled his obligations under the contract; (3) any conditions precedent to the defendant's performance occurred; (4) the defendant unfairly interfered with the plaintiff's rights to receive the benefits of the contract; and (5) the plaintiff was harmed by the defendant's conduct."[54] "An implied covenant claim requires the plaintiff to show that the conduct of the defendant, whether or not it also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of the agreement.'"[55]

D. Fraud and Negligent Misrepresentation

"The elements of a cause of action for fraud in California are: (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.'"[56] "Under the heightened pleading standard in the federal rules, a plaintiff must also allege the specific circumstances constituting fraud such that the defendant has notice of the actual misconduct."[57] "Averments of fraud must be accompanied by the who, what, when, where, and how of the misconduct charged."[58] A cause of action "based on a false promise is simply a type of intentional misrepresentation, i.e., actual fraud.'"[59]

"Under California law, a negligent misrepresentation claim is comprised of the same elements as a claim for fraud: (1) the misrepresentation of a past or existing material fact, (2) without reasonable ground for believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage.'"[60] "The only difference is that a negligent misrepresentation claim does not require knowledge of falsity."[61] "Rather, to plead negligent misrepresentation, it is sufficient to allege that the defendant lacked reasonable grounds to believe the representation was true."[62] "Additionally, to state a claim for negligent misrepresentation, the plaintiff must also show that the defendant owed the injured party a duty of care."[63]


A. Request for Judicial Notice

Defendants request the court take that judicial notice of various foreclosure-related documents recorded in the Santa Cruz County Recorder's Office (Exhibits A through I).[64] The court may take judicial notice of a "fact that is not subject to reasonable dispute because it is generally known" or "can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned."[65] Fevinger has not objected to the request for judicial notice. The authenticity of the foreclosure-related documents is not in dispute and may be verified by resort to the public record.[66] The court, however, will not rely on facts contained within the documents that reasonably may be subject to dispute.[67] Defendants' request for judicial notice therefore is GRANTED as to all documents.

B. Fevinger's Breach of Contract Claim is Insufficiently Pleaded

Defendants urge that Fevinger's claim for breach of "Section 19 of the DOT" fails because the allegations do not "point to any breach of an express contract term."[68] Fevinger responds that Defendants breached the contract by (1) refusing to provide her with the size of arrears to enable her to reinstate her loan and (2) providing her with an erroneous quote that overstated the size of her default.[69]

The complaint concedes that Fevinger was provided with a reinstatement figure - she just disputes the accuracy of that figure.[70] Even taking the allegations in the complaint as true, the court cannot see how Defendants waived Fevinger's debt obligations under the contract and thus provided an artificially inflated value to Fevinger. The DOT contains explicit language stating that acts of forbearance, including activities of a loan modification, do not waive the Lender's right to enforce the terms of the DOT. Even if the loan was under review for a modification, Fevinger was still obligated to remain current on her loan - she had a preexisting legal duty. The DOT also is explicit: the "Lender may charge Borrower fees for services performed in connection with Borrower's default, for the purpose of protecting Lender's interest in the Property and rights under this Security Instrument, including, but not limited to, attorneys' fees, property inspection and valuation fees."[71] The court therefore cannot credit Fevinger's argument that the reinstatement figure was artificially inflated. Because Fevinger remains in default on the loan, her breach of contract claim cannot survive. Although in light of the contract language the court is skeptical that this claim can be cured through amendment, Fevinger is granted leave to amend this claim.

C. Because Fevinger Has Not Adequately Pleaded that She Fulfilled Her Obligations Under the Contract or that Defendants Breached the Contract, Her Breach of the Covenant of Good Faith and Fair Dealing Claim Fails

In this case Fevinger has not adequately pleaded that she fulfilled her obligations under the contract or that Defendants breached the contract. Fevinger fell behind on her payments and never cured the default. Fevinger's complaint concedes that she was provided with a reinstatement figure to settle her arrears.[72] She never did. Her claim for breach of the covenant of good faith and fair dealing thus cannot survive.[73] Because the court is not persuaded that amendment as to this claim is futile, the claim is dismissed with leave to amend.

D. Fraud and Negligent Misrepresentation

Fevinger brings fraud and negligent misrepresentation claims against Defendant Bank of America. In short, Fevinger alleges that Bank of America "orally represented" that Fevinger's property "would not be lost via foreclosure while her account was being reviewed for a loan modification."[74]

1. Fraud

As an initial matter, the court rejects Bank of America's argument that Fevinger's fraud and negligent misrepresentation claims are insufficiently pleaded pursuant to Rule 9 because the complaint does not spell out (1) which employees made specific representations (2) under what authority and (3) when those misrepresentations were made. The operative complaint does a commendable job alleging the calls Fevinger made to Bank of America in this case: her allegations specifically detail when calls were made, who she talked to and what was discussed. This is adequate at the pleading stage - even under Rule 9's heightened scrutiny.

Bank of America also argues that the purported misrepresentation does not constitute actionable fraud. Here, the Bank is on firmer ground. The complaint alleges a single misrepresentation: that Fevinger's property would not be sold while her application for a loan modification was being reviewed. The complaint accepts that Fevinger's loan modification application was denied first[75] and then the notice of default was recorded.[76] It also must be pointed out that the property has not been sold.

Fevinger responds to this point by arguing that Bank of America's agents represented that so long as any loan modification application was pending, no foreclosure activity would occur - including the filing of a notice of default or notice of trustee's sale. Because the notice of default was filed before Fevinger received a denial of her second loan modification application, Fevinger's fraud claim is actionable.

Despite Fevinger's representations at the hearing on this motion, the complaint does not clearly allege that Fevinger was told that no foreclosure activity would occur while any loan modification application was pending. Instead, the complaint alleges the actionable fraud was Bank of America's oral representations that Fevinger's property "would not be lost via foreclosure while her account was being reviewed for a loan modification."[77] The complaint includes allegations that Fevinger was told the Bank had a general policy to not foreclose homes while loan modification applications were pending and specifically instructed that her property would not be foreclosed while her loan modification application was pending. Generously construed, the claim language remains ambiguous and dismissal is warranted. Because the court does not believe that amendment as to this claim would be futile, Fevinger is granted leave to amend.

2. Negligent Misrepresentation

Bank of America urges that because Fevinger has not adequately pleaded why Bank of America owed her a duty in this case, her claim for negligent misrepresentation must be dismissed. Fevinger concedes that, in a vacuum, a bank carries no duty to review a loan modification application. But according to Fevinger, that concession is not dispositive because she was instructed by Bank of America not to reinstate her loan on the promise that her home would not be foreclosed while her loan modification application was pending. Once Bank of America elected to review her application, it assumed a duty of care.

The court disagrees. Financial institutions "typically do not owe a duty of care to a borrower when its activities do not exceed those of a conventional money lender."[78] "Numerous cases have characterized a loan modification as a traditional money lending activity, warranting application of the rule articulated in Nymark " that "a financial institution in general owes no duty of care to a borrower."[79] The court agrees with the great weight of authority interpreting Nymark and holds that because loan modification activities are within the traditional scope of the lender Bank of America owed Fevinger no duty of care regarding her loan modification application.[80]

E. Cal. Civil Code § 2924

The amended complaint's Section 2924 claim is a bit murky. The court's best understanding of the claim is that Defendants' conduct interfered with Fevinger's statutory right under Cal. Civil Code § 2924c to reinstate her loan more than five days before the date of the foreclosure sale by inflating the fees and payments she owed on her loan. The relevant portion of the statute provides:

Reinstatement of a monetary default under the terms of an obligation secured by a deed of trust, or mortgage may be made at any time within the period commencing with the date of recordation of the notice of default until five business days prior to the date of sale set forth in the initial recorded notice of sale.[81]

Fevinger urges that because Defendants waived certain "fees and payments" under Cal. Civil Code Section 1511 she was induced to inaction and is therefore "entitled to all the benefits of the contract had it been performed by both parties."[82] Defendants demand that Fevinger cure the

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