Hernandez v. Wells Fargo & Co.

          ORDER GRANTING MOTION TO DISMISS AND JUDICIAL NOTICE

          WILLIAM ALSUP UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         In this putative class foreclosure action, defendant Wells Fargo & Company moves to dismiss. For the following reasons, the motion is GRANTED.

         STATEMENT

         Defendant Wells Fargo & Company (WFC) is a financial services company headquartered in San Francisco, California. The firm's primary operating subsidiary is Wells Fargo Bank, N.A. (Bank).

         Plaintiffs all had their mortgage loans serviced by the Bank when they faced various financial hardships and defaulted on their loans. Although they sought loan modifications, those applications were denied (Amd. Compl. ¶¶ 30-33).

         At the time plaintiffs requested loan modifications, defendants participated in the Home Affordable Modification Program (HAMP), through which mortgage lenders received stimulus funds in exchange for issuing loan modifications to qualified borrowers. Although plaintiffs met the program's threshold requirements for such a modification, defendants failed to offer them one. Instead, the Bank foreclosed on eleven of the named plaintiffs and more than five hundred other customers who could not make their monthly payments without a modification. Two plaintiffs, Russell and Brenda Simoneaux, did not face foreclosure and ultimately paid off their mortgage (id. ¶¶ 30-34, 109-13).

         A 2010 investigation by the Office of Comptroller of the Currency (OCC) found numerous deficiencies in the Bank's mortgage modification and foreclosure practices, including that it failed to devote adequate oversight to its foreclosure processes, failed to ensure compliance with applicable laws, and failed to adequately audit its foreclosure procedures. The Bank and WFC each signed a consent order agreeing to correct these deficiencies. In its consent order, WFC was ordered to strengthen its oversight of the Bank's compliance with HAMP, ensure its audit and compliance programs were adequately staffed, and to improve the information and reports that it would regularly review. WFC's Board of Directors agreed. The Bank's Board of Directors, made up entirely of WFC board members, agreed to its consent order as well. However, in June 2015, the OCC found the Bank and WFC were still not compliant, and that the Bank failed to detect multiple systematic errors in the automated decision-making software it used to determine customers' eligibility for a mortgage modification (id. ¶¶ 35-47).

         In October 2015, the Bank discovered a calculation “error” in a software tool it used to determine whether to issue a mortgage modification. This calculation error, which underlies the claims in this case, caused certain fees to be misstated and resulted in incorrect modification denials. The OCC issued a $70 million penalty. These errors were not disclosed until 2018. In total, 870 customers were incorrectly denied a loan modification, 545 of who lost their homes in foreclosure. According to plaintiffs, these repeated failures to implement adequate testing procedures - as well as other high-profile scandals that have roiled the bank in recent years - are emblematic of defendants' chronic and intentional lack of oversight (id. ¶¶ 48-69).

         In December 2018, plaintiff Alicia Hernandez filed this putative nationwide class action, asserting claims for negligence, conversion, violations of California's Unfair Competition Law, and violations of the New Jersey Consumer Fraud Act. In response to a motion to dismiss, Hernandez filed an amended complaint in February 2019. The operative complaint added 15 new named plaintiffs, added WFC as a new defendant, and added nine additional claims for relief. WFC now moves to dismiss the complaint for failure to state a claim (Dkt. Nos. 1, 44, 73). The instant motion is brought only by Wells Fargo & Company. Wells Fargo Bank, N.A. moved separately to dismiss (Dkt. No. 59), which was granted in part and denied in part (Dkt. No. 87). The instant order only addresses the claims from the parties' Joint Response to the Court's June 3, 2019 Order (Dkt. No. 96). This order follows full briefing and oral argument.

         ANALYSIS

         A complaint must plead “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). A claim has facial plausibility when its factual allegations, rather than mere conclusory statements, create the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A court ruling on a motion to dismiss must accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1030-31 (9th Cir. 2008). Conclusory allegations or “formulaic recitation of the elements” of a claim, however, are not entitled to the presumption of truth. Iqbal, 556 U.S. at 681.

         1. INDIRECT LIABILITY.

         A parent may be vicariously liable for its subsidiary's actions under an agency ...