Renowitzky v. Wells Fargo Bank N.A

          ORDER GRANTING MOTIONS TO DISMISS Re: Dkt. Nos. 28, 31

          JOSEPH C. SPERO CHIEF MAGISTRATE JUDGE

         I. INTRODUCTION

         Plaintiffs Carl Renowitzky and Pauline Gallegos bring this action alleging that Defendants Wells Fargo Bank, N.A. ("Wells Fargo") and NDeX West, LLC ("NDeX") wrongfully foreclosed on property that Plaintiffs resided at or owned. Defendants each move to dismiss Plaintiffs' First Amended Complaint. The Court held a hearing on June 3, 2016. For the reasons discussed below, Defendants' Motions are GRANTED, and the First Amended Complaint is DISMISSED with leave to amend. Plaintiffs may file a second amended complaint addressing the deficiencies discussed in this Order no later than July 13, 2016.^[1]

         II. BACKGROUND

         A. Allegations of the First Amended Complaint

         Plaintiffs filed an initial Complaint pro se, but later obtained counsel and filed their operative First Amended Complaint ("FAC, " dkt. 7). The First Amended Complaint alleges that Plaintiffs owned and/or resided at property located at 26473 Palomares Road, Castro Valley, California (the "Property"), which was subject to a first-lien mortgage serviced by Wells Fargo. FAC ¶¶ 10, 11. On April 17, 2015, Wells Fargo's attorney Dean Reeves informed Plaintiffs that Plaintiffs' application for a modification of their mortgage was under review. Id. ¶ 12. Three days later, however, NDeX sold the Property at a foreclosure sale. Id. ¶ 15. NDeX "discouraged or prevented competitive bidding on the Property, causing the Property to be sold for less than its market value and stripping Plaintiffs of their equity in the Property." Id. ¶ 17. Wells Fargo acquired the Property at the foreclosure sale as the foreclosing beneficiary. Id. ¶ 18.

         Neither NDeX nor Wells Fargo gave Plaintiffs notice that the Property would be sold on the date that it was. Id. ¶¶ 14, 15. If Plaintiffs had received such notice, they allege that they would have raised the funds necessary to reinstate their mortgage and avoid the foreclosure sale. Id. ¶ 16.

         The First Amended Complaint includes four claims: (1) deceit; (2) a claim to set aside the foreclosure sale for violations of California Civil Code sections 2924, 2924f, 2924g, and 2924h; (3) wrongful foreclosure; and (4) unlawful and unfair business practices under California's Unfair Competition Law ("UCL"). See Id. ¶¶ 19-40. Plaintiffs seek to set aside the trustee's sale of their property, recover the property as restitution, and recover compensatory and exemplary damages (including for emotional distress), attorneys' fees, and costs. Id. at 6-7 (prayer for relief).

         B. Facts Subject to Judicial Notice

         Both Defendants request judicial notice of a number of documents on the basis that they are public records not reasonably subject to dispute, among other theories. See generally NDeX RJN (dkt. 29); Wells Fargo RJN (dkt. 32). Such documents purport to show, for example, that Renowitzky and his then-wife Michelle Renowitzky transferred to Property to Gallegos in 2007, NDeX RJN Ex. 2, that NDeX provided initial notice of a foreclosure sale to take place nearly one year before the sale actually occurred, id. Ex. 5, that Gallegos filed two bankruptcy actions that were subsequently dismissed, id. Exs. 7-11, and that Plaintiffs filed a previous action against Defendants in state court that was eventually dismissed with prejudice, id. Exs. 12-15. See also Wells Fargo RJN Exs. J, L-P.

         Plaintiffs object to the Court taking judicial notice of the truth of public records, rather than their mere existence, and argue that Gallegos's bankruptcy records are irrelevant. Opp'n to NDeX (dkt. 37) at 3-4, 9; Opp'n to Wells Fargo (dkt. 26) at 3. NDeX responds that the Court may take notice of a document's "legally operative language" and "adjudicative facts" under both California and federal law, and that Gallegos's purported bad faith in previously obtaining bankruptcy stays is "certainly relevant" to her equitable claims under state law. NDeX Reply (dkt. 38) at 2-4. As is relevant to the present Motions, the Court takes judicial notice that Plaintiffs filed an action related to the Property against Defendants in state court on July 21, 2014 (NDeX RJN Ex. 12), that Plaintiffs filed an amended complaint in that action on December 10, 2014, (id. Ex. 13; Wells Fargo RJN Ex. L), and that a judgment of dismissal with prejudice was entered on May 27, 2015 (NDeX RJN Ex. 15; Wells Fargo RJN Ex. P). See Harris v. County of Orange, 682 F.3d 1126, 1131-32 (9th Cir. 2012).

         C. NDeX’s Motion to Dismiss

         NDeX moves to dismiss Plaintiffs' claims against it on four grounds: (1) as a successor mortgage trustee, its duties and potential liabilities are strictly limited, and do not give rise to Plaintiffs' claims, NDeX Mot. (dkt. 28) at 11-12; (2) Plaintiffs' claims are barred by res judicata as a result of the state court action, id. at 12-14; (3) Plaintiffs' claims for deceit and unlawful or unfair business practices do not allege fraudulent or other wrongful conduct by NDeX, and do not satisfy the heightened pleading standard of Rule 9(b), id. at 15-17; and (4) Plaintiffs' claims for wrongful foreclosure and to set aside the trustee sale must be dismissed because Plaintiffs have not adequately alleged either defects in the sale or prejudice, and because Plaintiffs have not tendered the amount due, id. at 17-19. NDeX requests judicial notice of various documents related to the mortgage and the foreclosure sale, as well as records from Gallegos's bankruptcy proceedings and the state court action. See generally NDeX RJN.

         Plaintiffs respond that res judicata does not apply here because their claims in this case arose after they filed the state court action. Opp'n to NDeX (dkt. 37) at 4. They argue that NDeX had a statutory duty-although the Opposition fails to specify any statute-to notify Plaintiffs of the foreclosure sale date, and that its failure to do so gives rise to a claim for deceit or fraud. Id. at 4-5. Plaintiffs contend that they have adequately alleged prejudice because they claim that they would have raised funds to reinstate their mortgage if they had known when the sale was occurring. Id. at 6 (citing FAC ¶¶ 16, 17). They also argue that they were excused from any requirement to tender the amount due because NDeX's failure to give notice of the sale date rendered the sale void, and that, regardless, their claim for wrongful foreclosure (as opposed to the separate claim to set aside the foreclosure) does not require any tender. Id. at 5-7 (citing, e.g., Ram v. OneWest Bank, FSB, 234 Cal.App.4th 1, 11 (2015)). As for their UCL claim, Plaintiffs argue that they have adequately alleged: (1) that NDeX "violated a number of [its] statutory obligations"; (2) that Plaintiffs "were in fact deceived" by NDeX's failure to notify them of the foreclosure sale; and (3) that NDeX's conduct violated the "unfair" prong of the statute regardless of which test the Court applies. Id. at 7-8. Plaintiffs also argue that NDeX is a necessary party, and that if the Court grants NDeX's Motion, it should also grant Plaintiffs leave to amend. Id. at 8.

         NDeX concedes in its Reply that the state court judgment has no preclusive effect because the facts alleged here arose after Plaintiffs filed that action. NDeX Reply (dkt. 38) at 9. NDeX argues, however, that it did, in fact, provide notice of the initial date of the foreclosure sale, which was set for April 28, 2014. Id. at 4 (citing NDeX RJN Ex. 5 (Notice of Trustee's Sale)). According to NDeX, Plaintiffs' claim is based on alleged lack of notice that the sale had been rescheduled to April 20, 2015-nearly a year after the initial date-and although California Civil Code section 2924(a)(5) provides that such notice is required under some circumstances, that statute makes clear that failure to provide notice is no basis to invalidate a sale. Id. at 4-5. NDeX contends that this distinction prevents Plaintiffs from invoking the void sale exception to the requirement that they tender the amount due. Id. at 7-8. NDeX also argues that Plaintiffs have not alleged that NDeX had exclusive knowledge of the postponed sale date, that Plaintiffs could not have learned of the date through reasonable diligence, or that NDeX benefited from failing to disclose the date. Id. at 6-7. Finally, NDeX contends that Plaintiffs inappropriately conflate NDeX's and Wells Fargo's conduct, and that any allegations of NDeX's misconduct in conducting the foreclosure sale are too conclusory to sustain a claim. Id. at 8-9.

         D. Wells Fargo’s Motion to Dismiss

         Wells Fargo contends as a starting point that Renowitzky cannot bring any of the claims in this action because Gallegos, not Renowitzky, was the sole borrower on the deed of trust for the Property, and the only allegation as to Renowitzky's interest is that both Plaintiffs were "owners and/or residents" of the Property. Wells Fargo Mot. at 3. Like NDeX, Wells Fargo also moves to dismiss based on res judicata arising from the state court action. Id. at 4-6. Wells Fargo goes on to argue that both the litigation privilege and the common-interest privilege bar Plaintiffs' claims under California law. Id. at 7-10.

         Turning to Plaintiffs' specific claims, Wells Fargo contends that Plaintiffs have not satisfied Rule 9(b)'s heightened pleading standard with respect to their claim for deceit, and "do not even allege that the representation about their application for loan modification"-i.e., that it was under review-"was not true." Id. at 10-11. According to Wells Fargo, the allegations of the First Amended Complaint do not give rise to any duty to disclose the sale date, and Plaintiffs have not adequately alleged their justifiable reliance on Wells Fargo's purportedly misleading representation or omission. Id. at 11-13. Wells Fargo argues that Plaintiffs' claim to set aside the trustee's sale must be dismissed for failure to tender the amount due and failure to allege prejudice, and because the language of the trustee's deed serves as prima facie evidence of compliance with California law (see Wells Fargo RJN Ex. K) and the statute at issue does not provide for invalidation of an otherwise proper sale. Id. at 13-15. Wells Fargo also argues that Plaintiffs have not alleged that the postponement exceeded ten days, as would be required to trigger a notification requirement under Civil Code section 2924(a)(5), and that Plaintiffs' allegations regarding the manner in which the sale was conducted are conclusory. Id. at 14. Wells Fargo contends that the claim for wrongful foreclosure lacks specificity and again fails to allege that Plaintiffs tendered the amount due. Id. at 15-16. As for Plaintiffs' UCL claim, Wells Fargo argues that Plaintiffs have not adequately alleged a predicate fraudulent or unlawful act, and that Plaintiffs lack standing because any harm that Plaintiffs suffered was caused by their own failure to pay their mortgage, not by Wells Fargo's conduct. Id. at 18-19.

         Plaintiffs contend that Renowitzky is a proper plaintiff because they allege that both he and Gallegos "were owners and/or residents of the property and that they lost equity and possession of the property as a result of the foreclosure." Opp'n to Wells Fargo (dkt. 36) at 3. They also argue that there is no "admitted evidence" to show that Gallegos was the only borrower on the mortgage, and even if that were so, Renowitzky could conceivably still bring a claim as a successor to the borrower. Id. at 4.

         As in their Opposition to NDeX's Motion, Plaintiffs argue that res judicata does not apply here because the operative facts arose after they filed their state court action. Id. They contend that the litigation privilege does not apply because it is not apparent from the allegations of the Complaint that Wells Fargo's attorney Reeves's statement regarding their modification application being under review was made in the context of litigation, and also argue that, regardless, the litigation privilege would not encompass a claim based on Wells Fargo's statutory duty to notify them of the sale date. Id. at 5. Plaintiffs contend that the common interest privilege does not apply because their claims are not based on Wells Fargo's "'mailing, ...