United States District Court, E.D. California
ANTHONY MORENO, an individual and co-borrower, CYNTHIA MORENO, an individual and co-borrower, Plaintiffs,
WELLS FARGO HOME MORTGAGE, et al., Defendants
For Anthony Moreno, Cynthia Moreno, Plaintiffs: Erikson M. Davis, LEAD ATTORNEY, Real Estate Law Center, P.C., Los Angeles, CA.
For Wells Fargo Home Mortgage, a division of Wells Fargo Bank N.A., as successor to World Savings Bank, FSB, Wachovia Corporation, Defendants: David Michael Newman, LEAD ATTORNEY, AFRCT, LLP, Pasadena, CA.
Kimberly J. Mueller, UNITED STATES DISTRICT JUDGE.
This matter is before the court on defendants' Motion to Dismiss plaintiffs' Complaint. (ECF No. 5.) Plaintiffs oppose the motion. (ECF No. 18.) The court decided the motion without a hearing. As explained below, the court GRANTS in part and DENIES in part defendants' motion.
I. INTRODUCTION AND PROCEDURAL BACKGROUND
The claims in this case arise out of defendants' alleged failure to keep their promises in connection with providing a loan modification to plaintiffs. ( See generally Defs.' Notice of Removal, Compl. Ex. A (" Compl."), ECF No. 1-1.) Plaintiffs are the owners of real property located in Modesto County (the Property), and defendants are the holders of the loan secured by the Property. (Id. ¶ ¶ 8-11.) Plaintiffs purchased the Property in 2006. (Id. ¶ 9.) In 2009, plaintiffs defaulted on their mortgage. (Defs.' Request for Judicial Notice, Ex. D, ECF No. 6). When plaintiffs sought financial assistance from defendants (Compl. ¶ 10), defendants offered plaintiffs a loan modification that allegedly would lower plaintiffs' monthly payments, " forgive all of the arrears, " and " cut their principal balance by over $100, 000" ( id . ¶ 12). Defendants' representative allegedly told plaintiffs they needed to make a " one-time lump sum payment of approximately $17, 000" to obtain the modification. (Id. ¶ 13.) Plaintiffs made that payment. (Id. ¶ 14). Even though plaintiffs made that payment, they allege they " soon discovered . . . their mortgage payments were basically the same as they were before and . . . there was no reduction in the payments, principal, or any forgiveness of the arrears as was promised . . . ." (Id. ¶ 17.) Consequently, plaintiffs again contacted defendants; defendants told them they could not provide any financial assistance, " but that Cynthia [Moreno] should re-apply . . . when she loses her job." (Id. ¶ 18.) " Defendants later told [p]laintiffs that they should miss a payment in order to become delinquent so that [d]efendants would be able to provide them with financial assistance." (Id. ¶ 19.) Subsequently, in 2011, defendants notified plaintiffs " they were unable to receive any assistance due to the high amount of debt [plaintiffs] had." (Id. ¶ 20.) Relying on that statement, plaintiffs filed for bankruptcy " to reduce the amount of debt they had." (Id. ¶ 21.) Plaintiffs filed a Chapter 7 petition on January 31, 2013, and the bankruptcy court granted the petition on May 24, 2013. (Ex. G, ECF No. 6 at 44-46.) But when plaintiffs contacted defendants after filing bankruptcy, defendants still refused to provide plaintiffs with financial assistance. (Id.) Plaintiffs allege their mortgage payment has remained the same as it was before " they were supposedly given a loan modification." (Id. ¶ 22.)
On May 21, 2014, plaintiffs filed a complaint in the Stanislaus County Superior Court against defendants, alleging seven claims: (1) fraud in the inducement; (2) violation of California's Business and Professions Code section 17200 (UCL); (3) violation of the covenant of good faith and fair dealing; (4) negligence; (5) promissory estoppel; (6) breach of contract; and (7) intentional misrepresentation. ( See Compl. at 6-15.) On June 30, 2014, defendants removed the case, asserting subject matter jurisdiction on the basis of diversity of citizenship under 28 U.S.C. § 1332(a). (ECF No. 1.) Defendants now move to dismiss plaintiffs' Complaint. (ECF No. 5.) Plaintiffs oppose (ECF No. 18), and defendants have replied (ECF No. 19).
II. LEGAL STANDARD ON MOTION TO DISMISS
Under Federal Rule of Civil Procedure 12(b)(6), a party may move to dismiss a complaint for " failure to state a claim upon which relief can be granted." A court may dismiss " based on the lack of 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).
Although a complaint need contain only " a short and plain statement of the claim showing that the pleader is entitled to relief, " Fed.R.Civ.P. 8(a)(2), to survive a motion to dismiss this short and plain statement " must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A complaint must include something more than " an unadorned, the-defendant-unlawfully-harmed-me accusation" or " 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action . . . .'" Id. (quoting Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss for failure to state a claim is a " context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679. Ultimately, the inquiry focuses on the interplay between the factual allegations of the complaint and the dispositive issues of law in the action. See Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984).
In making this context-specific evaluation, this 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). This rule does not apply to " a legal conclusion couched as a factual allegation, " Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986), quoted in Twombly, 550 U.S. at 555, to " allegations that contradict matters properly subject to judicial notice, " or to material attached to or incorporated by reference into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
A. Judicial Estoppel
Defendants argue plaintiffs' claims should be dismissed as barred by the judicial estoppel doctrine. (ECF No. 5 at 3-4.) Specifically, defendants reason because plaintiffs did not list their instant claims against defendants in plaintiffs' bankruptcy petition, they should be barred from raising those claims by the instant lawsuit. (Id. at 4.)
Plaintiffs respond they could not have listed their claims in their bankruptcy petition because it was only after the debt's discharge that they " realized [defendants] had no intention of providing them with assistance . . . ." (ECF No. 18 at 7.)
" Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position." Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001). The doctrine's application " is not limited to bar the assertion of inconsistent positions in the same litigation, but is also appropriate to bar litigants from making incompatible statements in two different cases." Id. at 783. The Ninth Circuit " invokes judicial estoppel not only to prevent a party from gaining an advantage by taking inconsistent positions, but also because of general consideration[s] of the orderly administration of justice and regard for the dignity of judicial proceedings, and to protect against a litigant playing fast and loose with the courts." Id. at 782 (internal quotation marks omitted & alteration in original). In sum, the doctrine's purpose is " to protect the integrity of the judicial process, " and the doctrine's invocation by a court is discretionary. New Hampshire v. Maine, 532 U.S. 742, 749-50, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001).
In the bankruptcy context, " [j]udicial estoppel will be imposed when the debtor has knowledge of enough facts to know that a potential [claim] exists during the pendency of the bankruptcy, but fails to amend his schedules or disclosure statements to identify the [claim] as a contingent asset." Hamilton, 270 F.3d at 784; see also Ah Quin v. Cnty. of Kauai Dep't of Transp., 733 F.3d 267, 271 (9th Cir. 2013) (" In the bankruptcy context, the federal courts have developed a basic default rule: If a plaintiff-debtor omits a pending (or soon-to-be-filed) lawsuit from the bankruptcy schedules and obtains a discharge (or plan confirmation), judicial estoppel bars the action.").
Here, the court finds defendants' judicial estoppel argument unpersuasive. Plaintiffs' theory of the case is that defendants told them in order to qualify for a loan modification, plaintiffs needed to eliminate their debt. (Compl. ¶ ¶ 20-21.) Relying on that assertion, plaintiffs filed for bankruptcy with the purpose of eliminating their debt. (Id.) After the bankruptcy was finalized, plaintiffs contacted defendants to inform them of the debt's discharge and to seek a loan modification, as defendants had allegedly promised. (Id.) But " [d]efendants stated that because [plaintiffs] had filed bankruptcy, they were unable to provide them with any financial assistance." (Id. ¶ 21.) Thus, it was not until the discharge of the debt and defendants' alleged decision not to provide plaintiffs with a loan modification " that [p]laintiffs realized [defendants] had no intention of providing them with assistance . . . ." (ECF No. 18 at 7; see also Compl. ¶ 21.) Accordingly, at this early stage of the litigation, viewing the Complaint's allegations as true, the court cannot say that " during the pendency of the bankruptcy" plaintiffs had " knowledge of enough facts to know that a potential [claim] exist[ed]." Hamilton, 270 F.3d at 784. Therefore, the court DENIES defendants' motion to the extent it is based on the judicial estoppel doctrine.
B. Statute of Limitations
Defendants argue plaintiffs' claims for fraud in the inducement, promissory estoppel, and intentional misrepresentation are time-barred because plaintiffs " filed this lawsuit more than three years after the alleged misrepresentations occurred." (ECF No. 5 at 4-6.) Plaintiffs counter they did not learn of defendants' alleged fraudulent acts until 2013, " after having followed [defendants'] suggestion of filing for bankruptcy in order to reduce their debt and [defendants] still refused to consider them for a modification." (ECF No. 18 at 8.)
In diversity of citizenship actions, federal courts apply state statutes of limitations. See Guar. Trust Co. of N.Y. v. York, 326 U.S. 99, 109-10, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945). In California, " the nature of the right sued upon, not the form of action or the relief demanded, determines the applicability of the statute of limitations." Jefferson v. J.E. French Co., 54 Cal.2d 717, 718, 7 Cal.Rptr. 899, 355 P.2d 643 (1960); see also Thomson v. Canyon, 198 Cal.App.4th 594, 606, 129 Cal.Rptr.3d 525 (2011) (to avoid permitting the plaintiff to avert a statute of limitations through " artful pleading, " California courts " look to the gravamen of the cause of action").
1. Fraud in the Inducement
In California, a plaintiff must bring a claim for fraud within three years of accrual of the claim. Cal. Civ. Proc. Code § 338(d). Such a claim accrues either when all the elements are complete or when " the aggrieved party . . . [discovers] the facts constituting the fraud . . . ." Id.; Soliman v. Philip Morris Inc., 311 F.3d 966, 971 (9th Cir. 2002); Norgart v. Upjohn Co., 21 Cal.4th 383, 397, 87 Cal.Rptr.2d 453, 981 P.2d 79 (1999). A plaintiff must plead and prove that she did not make the discovery until within three years of filing the complaint. Samuels v. Mix, 22 Cal.4th 1, 14, 91 Cal.Rptr.2d 273, 989 P.2d 701 (1999). Specifically, the pleadings must demonstrate with " particularity" " (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence." Camsi IV v. Hunter Tech. Corp., 230 Cal.App.3d 1525, 1536-37, 282 Cal.Rptr. 80 (1991) (internal quotation marks omitted); Casualty Ins. Co. v. Rees Investment Co., 14 Cal.App.3d 716, 719, 92 Cal.Rptr. 857 (1971).
As an initial matter, it appears plaintiffs challenge allegedly unlawful acts by defendants having taken place at different time-periods: first, plaintiffs allege the initial loan modification did not comport with the terms promised by defendants; and second, plaintiffs allege defendants reneged on their ...