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Hutchins v. Nationstar Mortgage LLC

United States District Court, N.D. California

May 12, 2017

JAMES HUTCHINS, Plaintiff,
v.
NATIONSTAR MORTGAGE LLC, et al., Defendants.

          ORDER GRANTING MOTION TO DISMISS COMPLAINT

          PHYLLIS J. HAMILTON United States District Judge.

         The motion of defendant Nationstar Mortgage LLC (“Nationstar”) for an order dismissing the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim came on for hearing before this court on May 10, 2017. Plaintiff James Hutchins appeared by his counsel Osman Tahir, and Nationstar appeared by its counsel Megan Kelly. Having read the parties' papers and carefully considered their arguments and the relevant legal authority, the court hereby GRANTS the motion as follows and for the reasons stated at the hearing.[1]

         The first cause of action for violation of California Civil Code § 2923.6 is DISMISSED WITH LEAVE TO AMEND. Section 2923.6 prohibits a foreclosing entity from recording a notice of default or notice of trustee's sale or conducting a sale while a complete loan modification application is pending. Cal. Civ. Code § 2923.6(c). The ban on so-called “dual-tracking” becomes effective once the borrower submits a “complete first lien loan modification application.Id. A loan modification application is “complete” once “a borrower has supplied the mortgage servicer with all documents required by the mortgage servicer within the reasonable timeframes specified by the mortgage servicer. Cal. Civ. Code § 2923.6(h).

         It is unclear how plaintiff contends Nationstar violated § 2923.6. In amending this cause of action, plaintiff must allege facts showing that he submitted a complete loan modification application to Nationstar (and specifying when he did so); and must allege facts showing that there was dual-tracking at the time the Notice of Default was recorded in November 2015 or the Notice of Sale was recorded in May 2016 (i.e., that Nationstar recorded foreclosure notices during the time that the loan modification application was pending), and that the purported violations of § 2923.6 were material in that they caused him harm. To the extent plaintiff is attempting to invoke § 2923.6(g), he must allege facts showing a specific change in financial circumstances that was documented and submitted to Nationstar.

         The second cause of action for violation of California Civil Code § 2923.7 is DISMISSED WITH LEAVE TO AMEND. In relevant part, § 2923.7 provides that “[u]pon request from a borrower who requests a foreclosure prevention alternative, the mortgage servicer shall promptly establish a single point of contact [“SPOC”] and provide to the borrower one or more direct means of communication with the single point of contact.” Cal. Civ. Code § 2923.7(a). The SPOC can be an individual or a team of personnel, but must (among other things) possess sufficient knowledge about foreclosure alternatives, and have access to individuals who have the ability and authority to stop foreclosure proceedings. Cal. Civ. Code §§ 2923.7(b)-(d). Moreover, “[t]he mortgage servicer shall ensure that each member of the [SPOC] team is knowledgeable about the borrower's situation and current status in the alternatives to foreclosure process.” Cal. Civ. Code § 2923.7(e).

         It is unclear how plaintiff claims Nationstar violated § 2923.7. In amending this cause of action, plaintiff must (as with the claim under § 2923.6) allege facts showing that he submitted a complete loan modification application to Nationstar (and specifying when he did so); and must allege facts showing that Nationstar failed to provide him with a SPOC, and that this failure to provide a SPOC in violation of § 2923.7 was material in that it caused him harm.

         The third cause of action for violation of California Business and Professions Code § 17200 (“UCL”) is DISMISSED WITH LEAVE TO AMEND. The UCL authorizes actions for injunctive relief to enjoin "unfair competition." Cal. Bus. & Prof. Code § 17203. "Unfair competition" is defined as any “unlawful, unfair or fraudulent business act or practice.” Cal. Bus. & Prof. Code § 17200. To assert a violation of the UCL, a plaintiff may plead facts showing a violation under any one of three prongs.

         Here, plaintiff alleges that Nationstar violated the UCL under all three prongs of § 17200. To state a cause of action based on an “unlawful” business act or practice under the UCL, a plaintiff must allege facts sufficient to show a violation of some underlying law. People v. McKale, 25 Cal.3d 626, 635 (1979). Plaintiff alleges that Nationstar's alleged violation of Civil Code §§ 2923.6 and 2923.7 constitute a violation of the “unlawful” prong. Thus, this part of the claim is entirely derivative of the claims under §§ 2923.6 and 2923.7.

         To state a claim for an “unfair” business act or practice under the UCL, using the “tethering test, ” a plaintiff must identify a public policy that is “tethered to specific constitutional, statutory, or regulatory provisions.” Drum v. San Fernando Valley Bar Ass'n, 182 Cal.App.4th 247, 256 (2010). Plaintiff alleges that Nationstar's alleged violation of §§ 2923.6 and 2923.7 constitute a violation of the “unfair” prong, based on the “public policy” embodied in California's Homeowner's Bill of Rights. Thus, this part of the claim is entirely derivative of the claims under §§ 2923.6 and 2923.7.

         To state a claim for a "fraudulent" business act or practice, a plaintiff must allege facts showing that the defendant engaged in a business act or practice in which members of the public are likely to be deceived. Weinstat v. Dentsply Int'l, Inc., 180 Cal.App.4th 1213, 1223 n.8 (2010) (citations omitted). In addition, however, in federal court, UCL claims premised on fraudulent conduct trigger the heightened pleading standard of Rule 9(b) of the Federal Rules of Civil Procedure. Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009). “Rule 9(b) requires a party to ‘state with particularity the circumstances constituting fraud or mistake, ' including ‘the who, what, when, where, and how of the misconduct charged.'” Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998 (9th Cir.2010) (quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)).

         It is unclear how plaintiff alleges that Nationstar violated the “fraudulent” prong of the UCL. In amending this cause of action, plaintiff must allege particularized facts showing the “who, what, when, where, and how” of the alleged deceptive conduct. It is insufficient for plaintiff to simply allege, as he has here, that Nationstar engaged in “deceptive business practices with respect to mortgage loan servicing, foreclosure of residential properties and related matters[;]” or that it sent plaintiff “false and misleading advertisements misrepresenting the availability of options to save [p]laintiff's home and leading [p]laintiff . . . to think that he could save his home in a matter of days if he just called [d]efendant for help;” or that it “misrepresent[ed] the foreclosure status to [p]laintiff regarding his property;” or that it made “false representations and false promises designed to deceive [p]laintiff into thinking he was safe from foreclosure while under review for a “loan modification” (which is also not adequately alleged). See Cplt ¶ 126. Finally, as to all three prongs, plaintiff must allege facts showing that he “suffered injury in fact” and “lost money or property” as a result of the unfair competition. See Cal. Bus. & Prof. Code § 17204.

         The fourth cause of action for negligence is DISMISSED WITH LEAVE TO AMEND. To state a claim for negligence, a plaintiff must allege (1) the defendant's legal duty of care to the plaintiff; (2) breach of that duty; (3) causation; and (4) resulting injury to the plaintiff. Merrill v. Navegar, Inc., 26 Cal.4th 465, 500 (2001). “The legal duty of care may be of two general types: (a) the duty of a person to use ordinary care in activities from which harm might reasonably be anticipated, or (b) an affirmative duty where the person occupies a particular relationship to others.” McGettigan v. Bay Area Rapid Transit Dist., 57 Cal.App.4th 1011, 1016-17 (1997). “The existence of a legal duty to use reasonable care in a particular factual situation is a question of law for the court to decide.” Vasquez v. Residential Invs., Inc., 118 Cal.App.4th 269, 278 (2004).

         It is unclear how plaintiff alleges that Nationstar was negligent. In amending this cause of action, plaintiff must allege facts showing that Nationstar owed him a duty of care, sufficient to show that this alleged duty falls within the narrow exception to the general rule that “a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money, ” see Nymark v. Heart Fed. Sav. & Loan Ass'n, 231 Cal.App.3d 1089, 1095-96 (1991), as set forth in Alvarez v. BAC Home Loans Servicing LP, 228 Cal.App.4th 941 (2014). Further, plaintiff must allege facts showing that Nationstar breached this duty of care, and that plaintiff was damaged thereby.

         The fifth cause of action for negligence per se is DISMISSED WITH PREJUDICE, because the court finds that it fails to state a claim, and that amendment would be futile. California Evidence Code § 669 codifies the doctrine of negligence per se based on violation of a statute or regulation. See Lua v. So. Pac. Transp. Co., 6 Cal.App.4th 1897, 1901 (1992). The statute provides that negligence of a person is presumed if he violated a statute or regulation of a public entity, if the injury resulted from an occurrence that the statute or regulation was designed to prevent, and if the ...


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