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Newman v. Bank of New York Mellon

United States District Court, E.D. California

May 5, 2017





         This matter is before the Court on Plaintiff's October 6, 2016, Motion for Leave to Amend and Supplement Plaintiff's First Amended Complaint after Remand. (ECF No. 67.) The motion was fully briefed (ECF Nos. 67, 68, 69, and 71) and, on November 3, 2016, argued and submitted. It is ready for resolution.

          I. Relevant History

         Plaintiff initiated this action October 1, 2012. (ECF Nos. 1 and 2.) Named Defendants were Bank of New York Mellon (“BONY”), Mortgage Electronic Recording Systems (“MERS”), and Bank of America (“BOA”). His Complaint sought damages and injunctive and declaratory relief based on causes of action arising out of quasi contract; negligence; the Fair Debt Collection Practices Act (“FDCPA”), 15 USC section 1692, et seq.; and California's Unfair Competition Law (“UCL”), California Business and Professions Code Section 17200, et seq. Broadly stated, Plaintiff's claims derived from his securing a home loan with a deed of trust on the home; subsequent transfers of the loan, the security in it, and the right to payment on it; attempts by successor creditors to foreclose on the security; and Plaintiff's attempts to pay off or refinance the loan. Plaintiff sought, among other relief, to enjoin foreclosure on the home.

         On December 3, 2012, Defendants moved to dismiss the Complaint. (ECF No. 8.) Their motion was granted, but with leave to amend. (ECF No. 18.) Plaintiff filed a First Amended Complaint on April 30, 2013. (ECF Nos. 19 & 20.) Defendants again moved to dismiss. (ECF No. 25.) On October 11, 2013, the District Court granted the motion to dismiss, entered judgment for Defendants, and closed the case. (ECF Nos. 42 & 43.)

         Plaintiff appealed. On May 13, 2016, the 9th Circuit Court of Appeals, in an unpublished decision, affirmed in part, reversed in part, and remanded. (ECF No. 52). As to the reversal, it explained:

1. The district court dismissed Newman's claims for declaratory relief, quasi contract, violations of the Fair Debt Collection Practices Act, violations of California Business & Professions Code section 17200, and accounting because the court determined that a borrower like Newman has no standing to challenge a foreclosing entity's legal authority to foreclose. But while this appeal was pending, the California Supreme Court decided Yvanova v. New Century Mortgage Corp., 365 P.3d 845 (Cal. 2016), which clarified that borrowers do have standing to challenge a foreclosing entity's authority to foreclose once the foreclosure has occurred. Id. at 860-61. And it appears that Newman's home was recently foreclosed on, bringing him within the class of people who have standing to bring these kind of claims. We therefore reverse the district court's dismissal of these claims for the district court to apply intervening California case law in the first instance.
2. As to Newman's negligence claim, the district court correctly held that a lender generally owes no duty to consider a loan modification. But while this appeal was pending, the California Court of Appeal decided another case, Alvarez v. BAC Home Loans Servicing, L.P., 176 Cal.Rptr.3d 304 (Cal.Ct.App. 2014), which clarified that a lender may have a duty to act reasonably once it affirmatively agrees to consider a loan modification application. Id. at 310. Because Newman alleges that defendants agreed to consider his loan modification request, we also remand this claim to the district court for consideration of intervening California case law in the first instance.

Newman v. Bank of N.Y. Mellon Corp., 649 F.App'x 630, 631 (9th Cir. 2016); (ECF No. 52).

         The Appeals Court's mandate issued June 7, 2016. (ECF No. 54.) On October 6, 2016, Plaintiff filed the motion to amend which is now before the Court. (ECF No. 67.) Defendants filed their opposition on October 17, 2016 (ECF No. 69), and Plaintiff replied to the opposition on October 27, 2016 (ECF No. 71). The parties appeared and argued their positions before the undersigned on November 3, 2016. (ECF No. 72.)

          II. Plaintiff's Motion to Amend

         As reflected above, the Appeals Court reversed as to Plaintiff's claims for declaratory relief, quasi contract, violations of the FDCPA and California's UCL, accounting and negligence. It remanded those claims “to the district court for consideration of intervening California case law in the first instance.” Newman, 649 F.App'x at 631.

          A. Plaintiff's Motion

         Shortly after remand and before any other substantive case events took place, Plaintiff filed the motion now before the Court. It is entitled “MOTION FOR LEAVE TO AMEND AND SUPPLEMENT PLAINTIFF'S FIRST AMENDED COMPAINT AFTER REMAND.” (ECF No. 67.) The word “SUPPLEMENT” is telling. In the motion, Plaintiff states the objective of amendment is “to raise the appropriate allegations in concert with the Ninth Circuit's ruling. In addition, the Plaintiff has added defendants who were complicit in the foreclosure of his residence . . .” and allegations against the original defendants for “their alleged continuing course of conduct which resulted in Plaintiff's loss of his residence and a claim for a wrongful foreclosure.” (ECF No. 67, p.3, lines 3-9.)

         The proposed Amended Complaint purports to name as additional Defendants: Recon Trust, Inc. (also referred to at times therein as Recon Trust, N.A. or RECONTRUST), a subsidiary of Bank of America, located in Simi Valley, California (“Recon”); Old Republic Title Insurance Company, located in Chicago, Illinois (“Old Republic”); New Penn Financial LLC dba Shellpoint Mortgages Services (also referred to at times as Shellpoint Servicing), located in Greenville, South Carolina (“Penn”); Peak Foreclosure Services, in Woodland Hills, California (“Peak”), and Does 1-10. Though perhaps a gross oversimplification, but sufficient for present purposes, the allegations against the new proposed defendants are that they were involved at various points in the chain of securitization transactions which began with the deed of trust on Plaintiff's house and ultimately resulted in foreclosure upon it.

          B. Opposition

         Defendants BONY, MERS, and BOA oppose the motion to amend on the grounds that: 1) the proposed amendments raise claims beyond those the Ninth Circuit directed be addressed on remand and Defendants would be prejudiced if the claims were allowed to proceed; and, 2) amendment would be futile because a) Plaintiff lacks standing to challenge the foreclosure on his home; and, b) Plaintiff has failed to allege facts essential to a cause of action for negligence.

         As to the first ground, Defendants argue that the Ninth Circuit's remand order did not invite Plaintiff to amend, add new parties, or enlarge his negligence claims. It simply directed that his claims be reviewed in light of intervening, more Plaintiff-favorable, case law. To force Defendants to meet these new claims and allow Plaintiff to proceed against additional parties in this same suit would be prejudicial to the defense.

         As to the second ground for objecting to amendment, Defendants cite to the principal that amendment should be denied where futile, where no set of facts in the amendment would give rise to a valid claim. (Citing Dumas v Kipp, 90 F.3d 386, 393 (9th Cir. 1996)). In this regard, Defendants argue that Plaintiff's proposed pleading demonstrates that Plaintiff does not have standing to challenge the foreclosure based on securitization because the alleged defects are merely voidable, and a borrower-victim of a nonjudicial foreclosure may challenge an assignment in the chain of securitization (as Plaintiff seeks to do here) only if the assignment was void. (Citing, inter alia, Yvanova, 365 P.3d at 848, 856-57; Morgan v Aurora Loan Servs. LLC, 646 Fed.Appx. 546, 550 (9th Cir. 2016); and Saterbak v. JPMorgan Chase Bank, N.A., 199 Cal.Rptr. 3rd 790 (Cal.Ct.App. 2016)).

         Further, as to negligence, Defendants argue that Plaintiff has not alleged that he was qualified to receive, and would have received, a loan modification if Defendants had not negligently handled his modification applications or delayed his seeking financial relief elsewhere, as was alleged in Alvarez, the new case which prompted the Ninth's remand.

          C. Reply

         Plaintiff responds that he proposes adding nothing new beyond the wrongful foreclosure, which Yvanova recognized as a valid cause of action. He argues that the new defendants were “part and parcel” of the scheme to foreclose, and Plaintiff has the right to proceed against them under California Civil Code Sections 2923.55, 2924.12 and 2914.17. He feels those sections support claims relating back to Defendants' alleged acts, and that all should be joined in this one action. Additionally, Plaintiff states that, while the first amended complaint “relie[d] in part on securitization issues, ” the proposed amended and supplemental complaint no longer contains allegations that “rely on a securitization argument, late-entry to the trust or otherwise.” Indeed, Plaintiff appears, at least at one point, to disclaim his previous arguments regarding improper securitization. Instead, he now argues that the original deed of trust is void for various reasons, and thus that all subsequent assignments also are void.

          III. Principles Applicable to Motions to Amend

         The Court looks first at Defendant's first objection to amendment: that Plaintiff's proposal goes far beyond anything the Ninth Circuit directed be considered on remand.

         The facts giving rise to that objection are indisputable. There is no reason whatsoever to believe that the Ninth Circuit anticipated Plaintiff would seek to broaden his suit on remand. But, correspondingly, there is nothing to reflect a Ninth Circuit intent to foreclose such an expansion. The Appeals Court did not say, “This case is remanded only for the purpose of . . . “ There appears to be nothing in the proposed amendment that is inconsistent with the District Court's dismissal of Plaintiff's California Civil Code section 2923.5 claim, which dismissal the Ninth Circuit upheld. Defendant did not cite to, and Court was unable to find, any authority suggesting that a remand on two of three grounds foreclosed expansion of the case in ways not inconsistent with other final rulings.

         Accordingly, the Court concludes that, now that this case is back before the District Court pursuant to the Ninth Circuit remand Order, it procedurally is like any other case in a similar stage of litigation and the motion for amendment should be evaluated in accordance with the standard rules for same.

         Except in circumstances not present here, leave of Court is required to amend a pleading. Fed.R.Civ.P. 15(a)(2). Leave to amend should be given freely, and with extreme liberality, unless the opposing party makes a showing of undue prejudice, bad faith, dilatory motive on the part of the moving party, or futility of the amendment. Forman v. Davis, 371 U.S. 178, 182 (1962); Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001) (citations omitted); Lockman Found. v. Evangelical Alliance Mission, 930 F.2d 764, 772 (9th Cir. 1991) (quoting Forman, 371 U.S. at 182). “Absent prejudice, or a strong showing of any of the remaining Forman factors, ...

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