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Kirkeby v. JP Morgan Chase Bank, N.A.

United States District Court, S.D. California

December 17, 2014



WILLIAM Q. HAYES, District Judge.

The matter before the Court is the Motion to Dismiss Plaintiff's Sixth Amended Complaint filed by Defendants JP Morgan Chase Bank, N.A. and California Reconveyance Company. (ECF No. 72).

I. Background

On February 15, 2013, Plaintiff Anastasia Kirkeby, proceeding pro se, initiated this action by filing a Complaint against JP Morgan Chase Bank, N.A. ("Chase") and California Reconveyance Company ("CRC"), alleging various state law claims related to the foreclosure of a deed of trust secured with the real property located at 30651 Camino de Las Lomas, Escondido, California 92026. (ECF No. 1). On September 23, 2014, Plaintiff filed the Sixth Amended Complaint ("Sixth AC"), which is the operative pleading. (ECF No. 71). On October 10, 2014, Defendants Chase and CRC (collectively "Defendants")[1] filed the Motion to Dismiss the Sixth Amended Complaint, accompanied by a request for judicial notice. (ECF No. 72). On November 3, 2014, Defendants filed a reply. (ECF No. 73). On November 10, 2014, Plaintiff filed a document titled "Seventh Amended Complaint." (ECF No. 75). On November 14, 2014, the Court issued an order striking the "Seventh Amended Complaint" because Plaintiff "did not receive Defendant's consent or leave of the Court before filing the Seventh Amended Complaint, as required by Rule 15(a)(2)." (ECF No. 76 at 2). The Court stated that "Plaintiff shall file any response to the Motion to Dismiss within ten (10) days from the date of this Order. Defendant shall file any reply within seventeen (17) days from the date of this Order." Id. On December 1, 2014, Defendants filed a Reply to Plaintiff's Non-Opposition to Their Motion to Dismiss, accompanied by a declaration. (ECF No. 77). The docket reflects that Plaintiff has not filed an opposition to Defendants' motion to dismiss.

II. Allegations of the Sixth Amended Complaint ("Sixth AC")

"When Plaintiff got behind on her payments and went into default, Defendants conducted various default-related services on Plaintiff's account, purportedly designed to protect the original lender's and/or investor's interest in the property. However, neither original lender's and/or investor's are permitted to mark-up the fees for such services to earn a profit. Nor are Defendants permitted to assess Plaintiff's account for default-related service fees that are unreasonable and unnecessary as they have done with impunity to twenty million distressed homeowners." (ECF No. 71 at 7). Defendants generated "huge profits from unlawfully accessing default-related service fees onto Plaintiff's account." Id. These "inflated default-related service fees" were really "inflated interest rates" that were "materially concealed" from Plaintiff. Id. "Defendants formed various default-related enterprises [associations of subsidiaries and affiliated companies] designed to disguise the hidden marked-up fees, and superfluous fees so that they could earn even more undisclosed profits. Through these unlawful enterprises, Defendants mark-up the fees charged by vendors, often by 100% or more, and then, without disclosing the mark-up, assess borrowers' accounts for the hidden fees for profit." Id. at 7-8. "In connection with their fraudulent schemes, Defendants have a practice of routinely assessing fees for default-related services, even when they are entirely unnecessary and clearly inappropriate. By deploying this tactic, Defendants are able to quietly and clandestinely earn huge profits from default-related service fees -at the expense of distressed homeowners like Plaintiff." Id. at 8.

"The mortgage contract between a lender and a borrower consists of two documents: the promissory note (Note') and the mortgage or deed of trust (Security Instrument'). The mortgage contacts serviced by Defendants are substantially similar because they conform to the standard Fannie Mae/Freddie Mac form contract. These contracts contain form language regarding what occurs if borrowers default on their loans. The Security Instrument authorizes the loan servicer, in the event of default, to: pay for whatever is reasonable or appropriate to protect the note holder's interest in the property and rights under the security instrument, including protecting and/or assessing the value of the property, and securing and/or repairing the property." Id. at 12. "The Security Instrument further provides that any such amounts disbursed by the servicer shall become additional debt of the borrower secured by the Security Instrument and shall bear interest at the Note rate from the date of disbursement. The Note provides that the note holder: will have the right to be paid back by [the borrower] for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees. Thus, the mortgage contract allows the servicer to pay for default-related services when necessary or appropriate, and to be reimbursed by the borrower, but it does not authorize the servicer to mark-up the actual cost of those services to make a profit." Id. at 12-13. "Defendants' marked-up fees violate Plaintiff's mortgage agreement because the fees exceed the actual cost of the services, and therefore, they are not, as the mortgage agreement requires, reasonable' or appropriate' to protect the note holder's and/or investor's interest in the property." Id. at 9. "Defendants were aware at the time charged that it was improper to mark-up the fees assessed on Plaintiff's account for default-related services. Therefore, Defendants fraudulently concealed these fees on Plaintiff's account, omitting any information about Defendants' additional profits, or properly identifying them on mortgage statements when billed, and only identified these charges as Other Charges, ' Other Fees, ' Miscellaneous Fees, ' or Corporate Advances.'" Id.

"Fidelity MSP is a sophisticated home loan management software program co-designed and used by Defendant CHASE on Plaintiff's mortgage account, and is one of the most widely used loan servicing software programs in the United States. When Plaintiff's loan was originated, guidelines for managing her loan was imported into Fidelity MSP, along with 20 million other loans serviced by Defendants. Plaintiff's loan was then automatically managed by the Fidelity MSP software program according to Defendant CHASE's dilatory guidelines." Id. at 10. "For example, inter alia, if a loan [Plaintiff's loan] in Defendants' systems is past due, the guidelines instruct the computer when to impose late fees. Defendants also assess other charges and fees against borrowers' accounts by using wrap around' software packages that work with the Fidelity MSP System. It is this [s]ystem that was used by Defendants on the Plaintiff's account. Based on set parameters inputted into the Fidelity MSP program, the Defendants' computer systems automatically implement decisions about how to manage borrowers' accounts, including Plaintiff's account, based on internal software logic'." Id. at 10-11. "Plaintiff is informed and believes, and on that basis, alleges that guidelines inputted into Chase's loan management software system automatically trigger property inspections if a loan is past due by a certain number of days. After a borrower's account is past due by a set number of days, as inputted into the software, Chase's computer automatically generates a work order for a property inspection automatically, and without human intervention. Moreover, so long as a borrower's account is past due by the requisite number of days inputted into the loan management software, Chase's system automatically continues to order inspections, regardless of whether it is reasonable or appropriate under the circumstances." Id. at 13-14. "Plaintiff is informed and believes, and on that basis, alleges that even if the property inspections were properly performed and actually reviewed by someone at the bank, Chase's continuous assessment of fees for these inspections on borrowers' accounts is still improper and unreasonable because of the frequency with which they are performed. If the first inspection report shows that the property is occupied and in good condition, it is unnecessary and inappropriate for Chase's system to automatically continue to order monthly inspections. Nothing in the reports justifies continued monitoring." Id. at 14.

"When borrowers go into default and Defendants unilaterally decide to perform default-related services, borrowers have no option but to accept Defendants' choice of providers. Taking advantage of these circumstances, Defendants formed the basis of their enterprises with their respective subsidiaries and affiliates, and then, developed a uniform practice of unlawfully marking up default-related service fees through the automated computer software program called Fidelity MSP." Id. at 8-9. "Defendant J.P. Morgan Chase & Co., and its subsidiaries, defendant J.P. Morgan Chase Bank, NA, and defendant Chase Home Finance LLC, formed an enterprise and devised a scheme to defraud borrowers and obtain money from them by means of false pretenses. According to Defendants J.P. Morgan's [sic] 2010 Annual Report, [w]hen it becomes likely that a borrower is either unable or unwilling to pay, the firm obtains a broker's price opinion of the home based on an exterior-only valuation'." Id. at 13. "Plaintiff is informed and believes, and on that basis, alleges that using its computerized automated mortgage loan management system and an enterprise of Chase subsidiaries and inter-company departments and divisions, Chase unlawfully charges marked-up fees for default-related services. Furthermore, to unlawfully conceal its actions and mislead Plaintiff about the true nature of its actions, Chase employs a corporate practice that omits true nature of the fees that are being assessed on her account." Id. at 14.

As a result of these practices, Plaintiff has suffered damages "in the form of the difference between the actual cost of the services provided and the marked-up fees assessed on Plaintiff's account" and it keeps Plaintiff "out of reach of ever reinstating the loan by quadrupling amounts owed, coupled with the assessment of marked-up fees using Fidelity MSP...." Id. at 14. Plaintiff's payments are applied to the fees first, "so there is not enough to cover the entire monthly payment." Id. at 15. Plaintiff's injuries were compounded by Defendant Chase intentionally delaying Plaintiff's loan modification application.

The caption of the Sixth AC asserts the following claims for relief: (1) violation of the Unfair Competition Law, California Business & Professions Code section 17200 et seq. ("UCL"); (2) violation of the "Unfair Debt Collection Practices Act, " California Civil Code section 1788, et seq.; (3) violation of the Consumer Legal Remedies Act, California Civil Code section 1750, et. seq. ("CLRA"); (4) breach of contract and breach of the duty of good faith and fair dealing (direct contracts); (5) breach of contract and breach of the duty of good faith and fair dealing (3rd party beneficiary); and (6) promissory estoppel. The introductory paragraph of the Sixth AC also asserts claims for (7) "Material Misrepresentation" and (8) negligence. The body of the Sixth AC asserts a claim for (9) violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. section 1962(c) ("RICO"). The only claims asserted in the body of the Sixth AC that are captioned or contained in the introductory paragraph are Plaintiff's UCL and CLRA claims. Plaintiff requests compensatory damages, restitution and disgorgement, treble damages, declaratory and injunctive relief, including an order that Defendants engage in corrective advertising, interest, and attorneys' fees, expenses, and costs.

III. Motion to Dismiss (ECF No. 57)

Defendants move to dismiss all of Plaintiff's claims for failure to state a claim and on the ground that Plaintiff lacks standing to sue in federal court as a private attorney general on behalf of the people of the State of California. Defendants request that Plaintiff be denied leave to amend on the grounds that amendment would be futile. Defendants contend that amendment would be futile because Plaintiff failed to cure the deficiencies identified by the Court as to Plaintiff's fraud-based claims in the Fifth AC. Defendants contend that Plaintiff has failed to set forth all of her claims, as instructed by the Court, by listing new claims in the caption only.

Plaintiff has filed no response to the Motion to Dismiss. Plaintiff was notified in the November 14, 2014 Order that she was given an additional ten days to respond to the Motion to Dismiss.

A. Legal Standard

Federal Rule of Civil Procedure 12(b)(6) permits dismissal for "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). "A pleading that states a claim for relief 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). Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts ...

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