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Ryan-Beedy v. Bank of New York Mellon

United States District Court, E.D. California

February 22, 2018

SUZANNE RYAN-BEEDY, an individual, Plaintiff,



         Plaintiff Suzanne Ryan-Beedy initiated this action against defendants Ditech Financial, LLC (“Ditech”) and the Bank of New York Mellon fka The Bank of New York as Trustee for the Benefit of the Certificate Holders of the CWALT, Inc. (“the Bank of New York Mellon”) for damages and equitable relief resulting from defendants' alleged acts or omissions concerning the residential mortgage loan modification transactions and subsequent foreclosure of plaintiff's property. Presently before the court are separate Motions to Dismiss by Ditech and the Bank of New York Mellon. (Docket Nos. 18, 22.)

         I. Factual and Procedural Background

         In September 2004, plaintiff obtained a $295, 000 loan from American Mortgage Network, Inc. in order to refinance her property in Tahoma, CA (“the subject property”). (First Amended Compl. (“FAC”) (Docket No. 16) ¶ 14.) The subject property is a rental property and is not plaintiff's primary residence. (Id. ¶ 15.) This loan was secured by a Deed of Trust on the property, which was assigned to the Bank of New York Mellon on April 16, 2011. (Id. ¶ 3.)

         By July 2015, plaintiff was in default in the amount of $137, 559.18. A Notice of Trustee's Sale of the Property was recorded on October 27, 2015, and the sale was set for November 25, 2015. Subsequently, on November 25, 2015, plaintiff filed for Chapter 13 bankruptcy protection. (FAC ¶ 16.) Accordingly, the sale did not proceed that day.

         Plaintiff alleges that in August 2016, her husband contacted who he thought was the Bank of New York Mellon, but in reality he spoke with a representative from Residential Credit Solutions, plaintiff's mortgage servicer. (Id. ¶ 17.) Unbeknownst to plaintiff, the Bank of New York Mellon had hired Residential Credit Solutions to service the subject loan. (Id.) The Residential Credit Solutions representative allegedly told plaintiff's husband that due to accounting errors in the loan, plaintiff owed less than had been represented to her and was in fact “nearly caught up” on the loan. (Id.) The representative further explained that if plaintiff stopped making her Chapter 13 payments and began making payments on the loan directly, Bank of New York Mellon would correct the accounting errors, modify the loan, and the loan would be brought current. (Id.) The agent also allegedly told plaintiff's husband that plaintiff should not begin making payments until she received the modification documents. (Id. ¶ 18.)

         On August 11, 2016, relying on these representations from the Residential Credit Solutions agent, plaintiff moved to dismiss her Chapter 13 Bankruptcy Case. In her dismissal, she explained that her “financial and legal situation had unexpectedly changed.” (Bank's Req. for Judicial Notice, Ex. R. (Pl.'s Decl. in Supp. of Mot. to Dismiss Bankruptcy).)[1]Plaintiff's motion was granted and her Bankruptcy Case was dismissed on August 12, 2016. However, she was unable to get anyone from Bank of New York Mellon or Residential Credit Solutions to help her obtain a loan modification. (Id. ¶ 21.)

         By this point, plaintiff's loan servicer had changed to Ditech, but plaintiff did not have actual knowledge of this. On or about June 13, 2017, Ditech caused a Notice of Trustee's Sale to be recorded, with a sale date noticed for July 7, 2017. (Id. ¶ 23.) However, Ditech did not send notices to plaintiff's primary residence in Folsom, California, and instead only sent notices to the subject property in Tahoma. (Id.) Because of this, plaintiff did not learn of the noticed sale until on or about June 23, 2017, when a friend informed plaintiff of the notice that had been posted on the door. (Id.) Plaintiff subsequently contacted the number on the Notice of Trustee's Sale on June 27, and it was during this conversation that plaintiff first learned that Ditech was, and had been, her loan servicer. (Id. ¶ 24.) The next day, plaintiff contacted Ditech directly, inquiring into how she could prevent the sale. (Id. ¶ 25.) During this conversation, plaintiff was informed that Ditech had been sending all communications to plaintiff's former attorney from a previous litigation that had ended in settlement years earlier, and not to her bankruptcy attorney whose representation post-dated the prior litigation. (Id. ¶ 26.)

         On June 29, 2017, plaintiff spoke with a Ditech representative named “Kevin” who informed her that if she submitted a complete modification application prior to the scheduled sale date, the foreclosure would be automatically placed on hold as the application was reviewed. (Id. ¶ 28.) In response, plaintiff faxed and mailed her application documents to Ditech. (Id. ¶¶ 30-32.) On July 5, 2017, plaintiff checked the status of her application online and confirmed that all documents had been received. (Id. ¶ 33.) However, on July 6, Ditech informed plaintiff that she in fact needed to send one more document. (Id. ¶ 34.) Plaintiff immediately complied and faxed that document. (Id.) A Ditech representative named “Paul” then confirmed with plaintiff that her document had been received and the application was now complete. (Id.) Despite this, the scheduled foreclosure sale occurred the next day, on July 7, 2017, and the subject property reverted to Bank of New York Mellon via a credit bid. (Id. ¶ 35.)

         Following the foreclosure, plaintiff spoke with a Ditech representative named “Sean” and explained to him that she and her husband had spoken to at least seven Ditech agents who had ensured them that if plaintiff submitted a complete modification packet before the sale date, the sale would definitely be postponed. (Id. ¶ 36.) “Sean” explained that those agents had not been telling the truth, that the sale was never going to be postponed, and that Ditech often rejected modification applications. (Id.) Days later, on or about July 17, 2017, after the foreclosure had occurred, plaintiff learned that Ditech had taken over as her loan servicer in or around February 2016, while her Chapter 13 Bankruptcy had still been in effect. (Id. ¶ 38.)

         Plaintiff filed this action on December 8, 2017, alleging: (1) Intentional Misrepresentation/False Promise; (2) Negligent Misrepresentation; (3) Promissory Estoppel; (4) Negligence; (5) Wrongful Foreclosure; (6) Intentional Infliction of Emotional Distress; and (7) Violation of Business and Professions Code § 17200.

         II. Legal Standard

         To survive a motion to dismiss, a plaintiff must plead “only enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This “plausibility standard, ” however, “asks for more than a sheer possibility that a defendant has acted unlawfully, ” and where a complaint pleads facts that are “merely consistent with” a defendant's liability, it “stops short of the line between possibility and plausibility.” Ashcroft v. Iqbal, 566 U.S 662, 678 (2009) (quoting Twombly, 550 U.S. at 556-57). In deciding whether a plaintiff has stated a claim, the court must assume that the plaintiff's allegations are true and draw all reasonable inferences in the plaintiff's favor. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court is not required to accept as true “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008).

         III. Discussion

         Plaintiff brings claims one through three only against the Bank of New York Mellon, as trustee, and Does one through fifty. Claims four through ten are alleged against the Bank of New York Mellon and Ditech, the loan servicer. Plaintiff alleges that an agency relationship existed between Ditech and Bank of New York Mellon, as trustee, as well as between Residential Credit Services, a non-party, and Bank of New York Mellon, as trustee. The Bank of New York Mellon allegedly authorized both of these financial institutions to represent and bind the Bank in regard to a modification of the loan. Plaintiff therefore argues that because both of these entities were acting as a servicer of the subject loan and agent of the Bank of New York Mellon, the Bank as principal is liable for all of the alleged acts of its agents.

         A. Claims One and Two

         Plaintiff's first and second claims are alleged against the Bank of New York Mellon for intentional misrepresentation/false promise and negligent misrepresentation. These two claims are based on plaintiff's allegations that a Residential Credit Solutions employee attempted to induce plaintiff to give up her Chapter 13 bankruptcy protections by convincing her that the Bank of New York Mellon would engage in a loan modification process with her. In reality, plaintiff alleges, the Bank of New York Mellon never had any intention of engaging in this process or of approving a loan modification. These claims are further based on the allegation that this Residential Credit Solutions representative never informed plaintiff that Ditech was her loan servicer. Plaintiff argues that as a result of these statements, she dismissed her bankruptcy case, lost her bankruptcy protections, and thus the subject property was sold at a trustee's sale.

         The elements of a cause of action for intentional misrepresentation/false promise, which is a subspecies of fraud, are (1) a material misrepresentation; (2) knowledge of falsity; (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) resulting damage. White v. J.P. Morgan Chase, Inc., 167 F.Supp.3d 1108, 1114 (E.D. Cal. 2016), aff'd sub nom. White v. JPMorgan Chase & Co., 702 F. App'x 642 (9th Cir. 2017). A cause of action for negligent misrepresentation must allege the same elements, “except that a plaintiff need not show that the defendant knew of the falsity of the statement, but rather that the defendant lacked reasonable ground for believing the statement to be true.” Marble Bridge Funding Grp., Inc. v. Euler Hermes Am. Credit Indem. Co., 225 F.Supp.3d 1034, 1039 (N.D. Cal. 2016).

         1. Plead Fraud with Specificity

         Because these claims allege fraudulent activity, plaintiff must satisfy the heightened pleading standard of Rule 9(b) and identify “the who, what, when, here, and how” of the fraud. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003). Defendant argues that plaintiff has not satisfied this heightened pleading requirement. However, the Ninth Circuit has explained that the specificity requirements for pleading fraud “may be relaxed as to matters within the opposing party's knowledge.” Moore v. Kayport Package Exp., Inc., 885 F.2d 531, 540 (9th Cir. 1989). Further, “[w]hen the allegations otherwise permit the defendant to defend against the charges, this court is not required to dismiss the complaint for plaintiffs' failure to identify a specific representative as the source of a false representation.” Ferguson v. JPMorgan Chase Bank, N.A., Civ. No. 2:14-328 KJM KJN, 2014 WL 2118527, at *9 (E.D. Cal., May 21, 2014).

         Here, plaintiff alleges that a representative from Residential Credit Solutions spoke to plaintiff's husband “in or around” August 2016 and explained that “if Plaintiff simply dropped her Chapter 13 bankruptcy, [Bank of New York Mellon] would work with Plaintiff to modify the Subject Loan and bring the loan current.” (FAC ¶ 63.) Although plaintiff is unable to name the specific representative, she has pled a specific misrepresentation/false promise (i.e. the “promise” to work with plaintiff to modify her loan), the general time period in which the statement occurred, the fact that the statement came from a representative of Residential Credit Solutions, and the fact that the communication took place over the phone. Accordingly, “the court finds plaintiff[] [has] sufficiently pled the time, place, and specific content of” the alleged misrepresentation “so as to allow defendant to defend against plaintiff's misrepresentation claims.” Ferguson, 2014 WL 2118527, at *10, citing Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal.4th 979, 990-91 (2004). Despite the informational gaps in plaintiff's complaint, it does not appear that defendant would be at all prejudiced or prevented from preparing a defense, particularly since defendant is alleged to be in a ...

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