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Way v. JP Morgan Chase Bank, N.A.

United States District Court, E.D. California

May 7, 2018

KATIE WAY, an individual; JOHN WAY, an individual; and EDDY WAY, an individual, Plaintiffs,
v.
JP MORGAN CHASE BANK, N.A., CALIBER HOME LOANS, INC., U.S. BANK, N.A., as trustee for LSF9 MASTER PARTICIPATION TRUST, and MTC FINANCIAL INC., dba TRUSTEE CORPS, Defendants.

          ORDER

          TROY L. NUNLEY UNITED STATES DISTRICT JUDGE

         This matter is before the Court pursuant to Defendant JP Morgan Chase Bank, N.A.'s Motion to Dismiss (ECF No. 29) and Defendants Caliber Home Loans and U.S. Bank's separate Motion to Dismiss (ECF No. 31-1).[1] Plaintiffs Katie Way, John Way, and Eddy Way (collectively “Plaintiffs”) oppose both motions. (ECF Nos. 37 & 38.) For the reasons set forth below, the Court hereby GRANTS in part and DENIES in part Defendants' Motions to Dismiss. (ECF Nos. 29 & 31.)

         I. FACTUAL AND PROCEDURAL BACKGROUND

         The facts of this case were addressed in great detail in this Court's prior Order and are incorporated herein by reference. (See Order, ECF No. 56.) Therefore, the facts outlined here are meant to describe how the moving Defendants fit into those facts. Defendant JP Morgan Chase (“Chase”) is the loan's former servicer. (ECF No. 21 ¶ 14.) Defendant Caliber Home Loans (“Caliber”) is the loan's current servicer. (ECF No. 21 ¶ 14.) Defendant U.S. Bank (“U.S. Bank”) is the loan's beneficiary. (ECF No. 21 ¶ 14.)

         II. STANDARD OF LAW

         Federal Rule of Civil Procedure 8(a) requires that a pleading contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” See Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Under notice pleading in federal court, the complaint must “give the defendant fair notice of what the claim ... is and the grounds upon which it rests.” Bell Atlantic v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotations omitted). “This simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002).

         A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). On a motion to dismiss, the factual allegations of the complaint are assumed to be true. Cruz v. Beto, 405 U.S. 319, 322 (1972). A court is bound to give plaintiff the benefit of every reasonable inference to be drawn from the well-pleaded allegations of the complaint. Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). A plaintiff need not allege “‘specific facts' beyond those necessary to state his claim and the grounds showing entitlement to relief.” Twombly, 550 U.S. at 570 (citing Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508 (2009)). “A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678-79 (citing Twombly, 550 U.S. at 556).

         Nevertheless, a court “need not assume the truth of legal conclusions cast in the form of factual allegations.” United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While Rule 8(a) does not require detailed factual allegations, “it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678. A pleading is insufficient if it offers mere “labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Twombly, 550 U.S. at 555; see also Iqbal, 556 U.S. at 678 (“Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.”). Additionally, it is inappropriate to assume that the plaintiff “can prove facts that it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).

         Ultimately, a court may not dismiss a complaint in which the plaintiff has alleged “enough facts to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). While the plausibility requirement is not akin to a probability requirement, it demands more than “a sheer possibility that a defendant has acted unlawfully.” Id. at 678. This plausibility inquiry is “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679.

         In ruling upon a motion to dismiss, the court may consider only the complaint, any exhibits thereto, and matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. See Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988); Isuzu Motors Ltd. v. Consumers Union of United States, Inc., 12 F.Supp.2d 1035, 1042 (C.D. Cal. 1998).

         If a complaint fails to state a plausible claim, “‘[a] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.'” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (en banc) (quoting Doe v. United States, 58 F.3d 484, 497 (9th Cir. 1995)); see also Gardner v. Marino, 563 F.3d 981, 990 (9th Cir. 2009) (finding no abuse of discretion in denying leave to amend when amendment would be futile). Although a district court should freely give leave to amend when justice so requires under Federal Rule of Civil Procedure 15(a)(2), “the court's discretion to deny such leave is ‘particularly broad' where the plaintiff has previously amended its complaint[.]” Ecological Rights Found. v. Pac. Gas & Elec. Co., 713 F.3d 502, 520 (9th Cir. 2013) (quoting Miller v. Yokohama Tire Corp., 358 F.3d 616, 622 (9th Cir. 2004)).

         III. ANALYSIS

         Plaintiffs allege six causes of action: (1) Breach of Contract; (2) Breach of Implied Covenant of Good Faith and Fair Dealing; (3) Intentional Infliction of Emotional Distress; (4) Violation of California Civil Code § 2923.55; (5) Negligence; and (6) Violation of Business and Professions Code § 17200. (ECF No. 21.) Defendants move to dismiss all claims. Caliber and U.S. Bank specifically ask this Court to dismiss Plaintiffs' FAC for failure to allege tender. (ECF No. 31-1 at 10.) The Court addresses the arguments collectively and in turn.

         A. First Claim: Breach of Contract

         Defendants contend that Plaintiffs' breach of contract claim should be dismissed for failure to state a claim because Plaintiffs failed to allege damages. (ECF No. 29 at 10; ECF No. 31-1 at 5.) Defendants further argue that Plaintiffs are the breaching party by virtue of their failure to pay their debt. (ECF No. 29 at 10; ECF No. 31-1 at 5.) Chase specifically argues that because it is unclear whether Plaintiffs allege a breach of the note and deed of trust or a breach of the loan modification agreement (“LMA”), the claim fails for uncertainty. (ECF No. 29 at 10.) Chase further argues that because there is no provision in the deed of trust that prohibits Chase from entering the LMA with one borrower, Plaintiffs cannot amend their complaint to point to a provision of the deed of trust that was breached and all Plaintiffs are still obligated under the terms of the original note and deed of trust. (ECF No. 29 at 10.)

         To state a cause of action for breach of contract, a plaintiff must plead the following elements: (1) the existence of a contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) resulting damage to the plaintiff. Reinhardt v. Gemini Motor Transp., 879 F.Supp.2d 1138, 1143 (E.D. Cal. 2012).

         Based on the exhibits attached to the FAC, [2] there are at least three contracts that may be at issue in this case: the Deed of Trust, the Promissory Note, and the Loan Modification Agreement. As the Court noted in its previous Order, it is unclear from the FAC which contract Plaintiffs allege Defendants breached - the Deed of Trust, the Promissory Note, or the Loan Modification Agreement, or all three. (ECF No. 21 ¶¶ 13, 24.) Because the Court is unable to determine which alleged contract serves as the basis for the first cause of action, the Court dismisses this claim. As the first element for a breach of contract claim has not been met, the Court need not discuss the other elements. Therefore, Defendants' motion to dismiss is granted with leave to amend. Plaintiffs may file a Second Amended Complaint consistent with this Court's Order identifying the specific contract at issue as to the first claim.

         B. Second Claim: Violation of the Covenant of Good Faith and Fair Dealing

         Defendants argue Plaintiffs fail to allege an underlying breach of contract claim and thus cannot allege a violation of the covenant of good faith and fair dealing. (ECF No. 29 at 11 & ECF No. 31-1 at 6.) Chase further argues that because Plaintiffs fail to identify a “special relationship” between Plaintiffs and Chase, which they allege is a prerequisite to asserting a tort claim for breach of implied covenant in a commercial context, this claim also fails. (ECF No. 29 at 11.) Plaintiffs argue Chase violated the implied covenant of good faith and fair dealing when it prevented them from “taking advantage of the benefits of the contract, i.e., to keep their loan in good standing for the benefit of their property to avoid foreclosure.” (ECF No. 37 at 7 & ECF No. 38 at 6.)

         “There is an implied covenant of good faith and fair dealing in every contract that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.” Kransco v. American Empire Surplus Lines Ins. Co., 23 Cal.4th 390, 400 (2000) (quoting Comunale v. Traders & General Ins. Co., 50 Cal.2d 654, 658 (1958)). “The prerequisite for any action for breach of the implied covenant of good faith and fair dealing is the existence of a contractual relationship between the parties, since the covenant is an implied term in the contract.” Smith v. City and County of San Francisco, 225 Cal.App.3d 38, 49, 275 (1990). “Without a contractual relationship, [plaintiffs] cannot state a cause of action for breach of the implied covenant.” Saldate v. Wilshire Credit Corp., 268 F.R.D. 87, 105 (E.D. Cal. 2010). “In essence, the covenant is implied as a supplement to the express contractual covenants, to prevent a contracting party from engaging in conduct which frustrates the other party's rights to the benefits of the contract.” Love v. Fire Ins. Exch., 221 Cal.App.3d 1136, 1153, 271 Cal.Rptr. 246 (1998), Carson v. Bank of Am., N.A., No. 2:12-CV-01487-MCE, 2013 WL 394867, at *5 (E.D. Cal. Jan. 30, 2013), aff'd sub nom. Carson v. Bank of Am. NA, 611 Fed.Appx. 379 (9th Cir. 2015). More importantly, “to state a claim for breach of the implied covenant of good faith and fair dealing, a plaintiff must identify the specific contractual provision that was frustrated.” Plastino v. Wells Fargo Bank, 873 F.Supp.2d 1179, 1191 (N.D.Cal.2012) (quoting Perez v. Wells Fargo Bank, N.A., No. 11-02279, 2011 WL 3809808, at *18 (N.D.Cal. Aug.29, 2011), Gilliland v. Chase Home Fin., LLC, No. 2:13-CV-02042 JAM-AC, 2014 WL 325318, at *4 (E.D. Cal. Jan. 29, 2014)).

         Chase first argues that “it is unclear as to whether Plaintiffs are basing the breach of the implied covenant on the note and deed of trust or on the LMA.” (ECF No. 29 at 11). However, Plaintiffs explicitly state in their FAC that the loan modification agreement is the contract at issue in this claim. (See FAC, ECF No. 21 ¶ 33.) Thus, in this respect Chase's argument is at a minimum a bad misstatement and at the most deliberately disingenuous. Further, Defendants mistakenly state that because Plaintiffs fail to allege an underlying breach of contract claim, their claim for breach of implied covenant fails. However, the implied covenant of good faith and fair dealing is implied in every contract, and one does not need allege or prove a breach of contract claim in order to bring a breach of implied covenant claim. Thrifty Payless, Inc. v. The Americana at Brand, LLC, 218 Cal.App.4th 1230, 1244 (2013) (“‘[B]reach of a specific provision of the contract is not…necessary' to a claim for breach of the implied covenant of good faith and fair dealing.”) citing Carma Developers (Cal.), Inc. v. Marathon Development California, Inc., 2 Cal.4th 342, 373, n.12 (1992). All that is required for an implied covenant claim is the existence of a contractual relationship between the parties. Smith v. City and County of San Francisco, 225 Cal.App.3d 38, 49, 275 (1990). Moreover, Defendants do not deny the fact that they were parties to the LMA. (ECF No. 29; ECF No. 31-1.) Because Plaintiffs adequately allege the existence of a contractual relationship, Plaintiffs may bring forth a claim for breach of implied covenant.

         Next, Chase cites Bionghi v. Metropolitan Water Dist. of So. California, 70 Cal.App.4th 1358, 1370 (1999), to assert that a “special relationship” is a necessary prerequisite to asserting a tort claim for breach of implied covenant in a commercial context. (ECF No. 29 at 11.) The Court agrees that recovery for breach of the implied covenant claim is generally only available in limited circumstances where there is a special relationship between contracting parties. Bionghi, 70 Cal.App.4th at 1370 (1999), Carson v. Bank of Am., N.A., No. 2:12-CV-01487-MCE, 2013 WL 394867, at *6 (E.D. Cal. Jan. 30, 2013), aff'd sub nom. Carson v. Bank of Am. NA, 611 Fed.Appx. 379 (9th Cir. 2015). Plaintiffs do not allege any facts indicating a special relationship between them and Defendants. (ECF No. 21 ¶¶ 31-38.) Instead, “Plaintiffs' alleged breach arises out of a normal commercial transaction, a mortgage loan, and the California courts have ...


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