United States District Court, N.D. California
ORDER GRANTING MOTIONS TO DISMISS Re: Dkt. Nos. 28,
C. SPERO CHIEF MAGISTRATE JUDGE
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.
Allegations of the First Amended Complaint
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.
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.
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).
Facts Subject to Judicial Notice
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.
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).
NDeX’s Motion to Dismiss
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.
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.
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.
Wells Fargo’s Motion to Dismiss
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.
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.
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.
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,