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Moore v. Wells Fargo Bank, N.A.

California Court of Appeals, Third District, Placer

August 28, 2019

GREGORY M. MOORE, Plaintiff and Appellant,
WELLS FARGO BANK, N.A., Defendant and Respondent.


          APPEAL from a judgment of the Superior Court of Placer County No. SCV0031530, Mark S. Curry, Judge. Reversed.

          C. Athena Roussos for Plaintiff and Appellant.

          Anglin Flewelling Rasmussen Campbell & Trytten, Robert A. Bailey and D. Dennis La, for Defendant and Respondent.

          Robie, J.

         “As authorized by Congress, the United States Department of the Treasury implemented the Home Affordable Mortgage Program (HAMP) to help homeowners avoid foreclosure during the housing market crisis of 2008. ‘The goal of HAMP is to provide relief to borrowers who have defaulted on their mortgage payments or who are likely to default by reducing mortgage payments to sustainable levels, without discharging any of the underlying debt.' ” (West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, 785.)

         In this case, plaintiff Gregory Moore contacted defendant Wells Fargo, N.A. (Wells Fargo)[1] to discuss possible assistance programs while he was unemployed. Wells Fargo recommended the forbearance plan (Plan) under the Home Affordable Unemployment Program (Unemployment Program) outlined in the United States Department of the Treasury's HAMP supplemental directive 10-04 dated May 11, 2010 (Directive 10-04). Wells Fargo explained the Plan would allow Moore to make reduced monthly payments for a period of time and said there was “no downside” to the Plan -- if Moore qualified for a permanent loan modification at the conclusion of the Plan, the arrears would be added to the modified loan balance and, if Moore did not qualify for a permanent loan modification, he would return to making his normal monthly payments.

         Moore applied for and was accepted to participate in the Plan. When he received the approval letter, entitled Unemployment Program Forbearance Plan Notice (Notice), Moore confirmed the Notice said the reduced monthly payments would be made “in place of” and “instead of” his normal monthly payments. Moore made the Plan payments and later applied for a permanent loan modification.

         Three days after receiving a denial of his permanent loan modification application, Moore received a letter from Wells Fargo stating he was in default on his loan, demanding immediate payment of his normal mortgage payment and the arrears consisting principally of the difference between his normal mortgage payments and the reduced Plan payments (i.e., a balloon payment), and threatening foreclosure. Moore sued to stop the foreclosure and asserted the following causes of action: (1) declaratory relief; (2) negligence; (3) breach of the covenant of good faith and fair dealing; (4) fraud; and (5) violation of Business and Professions Code section 17200, the unfair competition law.[2]

         In pretrial rulings, the trial court, among other things, adjudicated Moore's declaratory relief cause of action in favor of Wells Fargo's contractual interpretation permitting it to demand the balloon payment and dismissed Moore's negligence cause of action in response to Wells Fargo's motion for judgment on the pleadings. The case then proceeded to a jury trial.

         After Moore rested his case at trial, the trial court granted Wells Fargo's motion for nonsuit as to Moore's breach of the implied covenant of good faith and fair dealing cause of action. The trial court further granted Wells Fargo's motion for judgment notwithstanding the verdict after the jury found Wells Fargo had committed fraud. The trial court also adjudicated the unfair competition law cause of action posttrial, finding in favor of Wells Fargo, and granted Wells Fargo's motion for costs and attorney fees.

         On appeal, Moore challenges the foregoing pretrial and posttrial rulings. We reverse.


         We provide a summary of the pertinent general allegations in the third amended complaint here as background and include the detailed factual background pertaining to each issue (including the trial evidence) in the applicable portion of the Discussion.

         Moore purchased his home in 1995 with a home loan by World Savings & Loan; he refinanced the loan with the same lender in 2004. World Savings & Loan was subsequently acquired by or merged with Wachovia Bank, which, in turn, was later acquired by or merged with Wells Fargo.

         In or about April 2009, Moore lost his job. Moore argued he continued making his full mortgage payments through October 2010.[3] In or about October 2010, anticipating difficulty in continuing to make full mortgage payments, Moore called Wells Fargo to discuss recommendations for financial relief until he became reemployed.

         A Wells Fargo representative described and recommended the Plan under HAMP's Unemployment Program. Moore provided the necessary financial and personal information, and, in approximately October 2010, Moore received an approval letter from Wells Fargo outlining the terms and conditions of the Plan. Under the Plan, Moore's monthly payments were reduced from approximately $2, 500 to $599.42. Moore “did not undertake alternative financial remedies he could have pursued including but not limited to: the seeking of alternative sources of financing; increasing his income with the taking-on of renters; the listing and sale of his residence; or filing for bankruptcy, because of the representations made to him by [Wells Fargo] about the Plan.”

         During phone calls with Wells Fargo, Moore inquired into the likely benefits or liabilities upon completion of the Plan. Based on those conversations, Moore “understood that if he remained in compliance with the Plan requirements, he would likely be approved for a modified loan upon completion of the Plan. At no time [when he applied for the Plan or] during [the monthly] phone calls or in any discussion with any [Wells Fargo] employee prior to March 2, 2011 was [Moore] advised that he would be responsible for immediate repayment of the difference between the Plan's forbearance payments and the financially greater, pre-forbearance mortgage payments, i.e. a ‘balloon' payment.” Moore also received no written notice regarding the balloon payment requirement. Rather, in response to his inquiries, Wells Fargo repeatedly assured Moore that he would not incur any additional liabilities under the Plan.

         Moore made the six Plan payments and three agreed-upon additional payments through extension of the Plan. In August 2011, however, Wells Fargo refused to accept another reduced Plan payment and advised Moore he was liable for immediate payment of his normal full mortgage payment and the arrears of $19, 000, consisting of the difference between his full mortgage payments and the reduced Plan payments plus fees and penalties. Wells Fargo considered Moore's Plan payments to constitute a default under the loan, and had reported the Plan payments as such to the credit reporting bureaus.

         Moore advised Wells Fargo that payment of the $19, 000 would constitute a financial hardship; Wells Fargo responded his failure to pay the amount would result in commencement of foreclosure proceedings. It further said any payment made “would be applied to the payment most in ‘arrears', namely the payment due November, 2010, the month in which the Plan had begun.” Moore received a notice of default and election to sell in March 2012, and a notice of sale in June 2012.

         Moore filed suit to avoid the foreclosure and asserted various causes of action. The trial court issued a restraining order precluding a trustee sale during the pendency of the litigation.



         Contract Claims

         Moore's contract-based claims -- as set forth in his declaratory relief and breach of the implied covenant of good faith and fair dealing causes of action -- are grounded in the premise that the Notice modified the loan's deed of trust and note; a premise not challenged or disputed by Wells Fargo. Indeed, Wells Fargo agrees the Notice must be read in conjunction with the deed of trust and note to understand the parties' respective rights, duties, and obligations, and asserted in the trial court that the Notice modified the note and deed of trust. The Notice, deed of trust, and note are collectively referred to as contract documents.

         The principal dispute between the parties is whether Wells Fargo could, pursuant to the contract documents, deem Moore in default and, accordingly, demand a balloon payment at the end of the Plan term, as it did. The trial court found the terms of the contract documents unambiguous in favor of Wells Fargo's interpretation.

         The trial court's ruling on the threshold question of ambiguity “is a question of law subject to our independent review.” (Curry v. Moody (1995) 40 Cal.App.4th 1547, 1552.) We do not read the contract documents the same way as the trial court; we find them ambiguous.


         Contract Interpretation Principles Generally

         “A modification of a contract is a change in the obligations of a party by a subsequent mutual agreement of the parties.” (West v. JPMorgan Chase Bank, N.A., supra, 214 Cal.App.4th at p. 798.) The language in the contract, as modified, must be interpreted as a whole and in the circumstances of the case; it cannot be found ambiguous in the abstract. (Producers Dairy Delivery Co. v. Sentry Ins. (1986) 41 Cal.3d 903, 916, fn. 7.) “The proper interpretation of a contract is disputable if the contract is susceptible of more than one reasonable interpretation, that is, if the contract is ambiguous. An ambiguity may appear on the face of a contract, or extrinsic evidence may reveal a latent ambiguity.” (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 114.) As our Supreme Court made clear in Pacific Gas & E. Co., however, “[a] court cannot determine based on only the four corners of a document, without provisionally considering any extrinsic evidence offered by the parties, that the meaning of the document is clear and unambiguous.” (Fremont Indemnity Co., at p. 114 [discussing Pacific Gas & E. Co. v. G. W. Thomas Drayage etc. Co. (1968) 69 Cal.2d 33, 37].)

         “[W]here the terms of an agreement are ambiguous, they ‘should be interpreted most strongly against the party who caused the uncertainty to exist.' [Citation.] Finally, ‘when different constructions of a provision are otherwise equally proper, [the construction] to be taken [is the one] most favorable to the party in whose favor the provision was made.' ” (Sutherland v. Barclays American/Mortgage Corp. (1997) 53 Cal.App.4th 299, 310 (Sutherland).)


         Contract Documents


         The Note

         The note provides Moore agreed to make principal and interest payments on the 15th day of every month from October 15, 2004, through September 15, 2034, to repay the $310, 000 principal at a variable interest rate. Any amount remaining on September 15, 2034, would be paid in full on that date -- the maturity date. If Moore's “monthly payments [were] insufficient to pay the total amount of monthly interest that [wa]s due[, ]... the amount of interest that [wa]s not paid each month, called ‘Deferred interest,' w[ould] be added to [his] Principal and w[ould] accrue interest at the same rate as the Principal.” In the event the unpaid balance exceeded 125 percent of the principal originally borrowed, Moore's monthly payment would be recalculated such that Moore “w[ould] pay a new monthly payment which [wa]s equal to an amount that w[ould] be sufficient to repay [his] then unpaid balance in full on the Maturity Date at the interest rate then in effect, in substantially equal payments.”

         Pertinent to the issue at hand, Moore would be in default if “[he] d[id] not pay the full amount of each monthly payment on the date it [wa]s due.” In that case, “the Lender [could] send [him] a written notice, called ‘Notice of Default,' telling [him] that if [he] d[id] not pay the overdue amount by a certain date, the Lender [could] require [him] to pay immediately the amount of Principal which ha[d] not been paid and all the interest that [he] owe[d] on that amount, plus any other amounts due under the Security Instrument.” The lender's decision not to require Moore to pay immediately the full amount owed at the time of default would not preclude the lender from “do[ing] so if [Moore] [was] in default at a later time.”

         The note further states the “the Security Instrument dated the same date as th[e] Note g[ave] the Lender security against which it [could] proceed if [Moore] d[id] not keep the promises which [he] made in th[e] Note.”


         The Deed Of Trust

         The deed of trust secured the note for the maximum aggregate principal balance of $387, 500 -- 125 percent of the original principal note amount. It contains two provisions outlining the lender's rights in the event of default. The first provision is entitled “Lender's Rights” and states: “Even if Lender does not exercise or enforce any of its rights under this Security Instrument or under the law, Lender will still have all of those rights and may exercise and enforce them in the future. Even if Lender obtains insurance, pays taxes, or pays other claims, charges or liens against the Property, Lender will have the right under Paragraph 28 below to demand that [Moore] make immediate payment in full of the amounts that [Moore] owe[s] to Lender under the Secured Notes and under this Security Instrument.”

         The second provision is contained in paragraph 28, entitled “Rights of the Lender if There is a Breach of Duty.” That provision states that, if Moore breached his duty by failing to, among other things, “pay the full amount of each monthly payment on the date it [wa]s due, ” the “Lender [could] demand an immediate payment of all sums secured... [and] [¶]... [could] take action to have the Property sold under any applicable law. [¶] Lender [would] not have to give [him] notice of a Breach of Duty. If Lender d[id] not make a demand for full payment upon a Breach of Duty, Lender [could] make a demand for full payment upon any other Breach of Duty.”


         The Notice

         The Notice was dated October 8, 2010. It states, in pertinent part:

         “After carefully reviewing the information you have provided, you are approved to enter into a forbearance plan under the Home Affordable Unemployment Program. Please read this letter so that you understand the terms and conditions of the forbearance plan (the ‘Plan').


         “You must make the new monthly ‘forbearance plan payments' in place of your normal monthly mortgage payment. Send your monthly forbearance plan payments - instead of your normal monthly mortgage payment - as follows: [six payments of $599.42 each to be made on the first day of each month starting on November 1, 2010, and ending April 1, 2011]

         “[¶]... [¶]

         “While you are performing under the terms of this Plan, your home will not be referred to foreclosure or sold at a foreclosure sale, if allowed by state law and/or investor guidelines.

         “This Plan will be terminated, regardless of payments received, if the Borrower fails to submit timely, complete documentation as required by the Home Affordable Program(s) or by lender.

         “The lender is under no obligation to enter into any further agreement, and this Plan shall not constitute a waiver of the lender's right to insist upon strict performance in the future.

         “All of the provisions of the note and security instrument, except as herein provided, shall remain in full force and effect. Any breach of any provision of this Plan or non-compliance with this Plan, shall render the forbearance null and void, and at the option of the lender, without further notice to you, may terminate this Plan. The lender, at its option, may institute foreclosure proceedings according to the terms of the note and security instrument without regard to this Plan. In the event of foreclosure, you may incur additional expenses of attorney's fees and foreclosure costs.

         “The due date of your loan will continue to be reported to the credit bureaus on a monthly basis.”


         The Contract Causes Of Action


         Declaratory Relief

         In his declaratory relief cause of action, Moore alleged an actual controversy existed regarding the parties' “respective rights and duties under the applicable promissory note and deed of trust, as modified by the Plan, ” because Moore had not missed a loan payment and was not in default.

         Moore sought a judicial determination of his rights and duties, and declarations that the Notice was a binding contract; Wells Fargo was precluded from seeking the balloon payment “both by the express terms of the Plan and by [its] failure to disclose that additional terms were in effect” and because it “failed to provide [Moore] with other loss mitigation options”; Moore was not actually in default on his loan; the pending foreclosure proceedings were invalid; and Wells Fargo's refusal to accept Moore's tendered payment excused him from his payment obligation and precluded the accrual of interest and late charges.


         Breach Of The Implied Covenant Of Good Faith And Fair Dealing

         To frame Moore's breach of implied covenant allegations, we begin with a brief background of the law. The implied covenant of good faith and fair dealing is implied by law in every contract to prevent a contracting party from depriving the other party of the benefits of the contract. Thus, “ ‘ “[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.”' ” (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc. (1992) 2 Cal.4th 342, 371.) The failure to deal fairly or in good faith gives rise to an action for damages. (See Sutherland, supra, 53 Cal.App.4th at p. 314.) “The covenant of good faith finds particular application in situations where one party is invested with a discretionary power affecting the rights of another.” (Carma Developers (Cal.), Inc., at p. 372.)

         “It is universally recognized the scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract.” (Carma Developers (Cal.), Inc. v. Marathon Development California, Inc., supra, 2 Cal.4that p. 373.) Violation of an express provision is not, however, required. (Ibid.) “Nor is it necessary that the party's conduct be dishonest. Dishonesty presupposes subjective immorality; the covenant of good faith can be breached for objectively unreasonable conduct, regardless of the actor's motive.” (Ibid.) “A party violates the covenant if it subjectively lacks belief in the validity of its act or if its conduct is objectively unreasonable. [Citations.] In the case of a discretionary power, it has been suggested the covenant requires the party holding such power to exercise it ‘for any purpose within the reasonable contemplation of the parties at the time of formation -- to capture opportunities that were preserved upon entering the contract, interpreted objectively.' ” (Id. at p. 372.)

         “The issue of whether the implied covenant of good faith and fair dealing has been breached is ordinarily ‘a question of fact unless only one inference [can] be drawn from the evidence.' ” (Hicks v. E. T. Legg & Associates (2001) 89 Cal.App.4th 496, 509.)

         Moore alleged an implied covenant of good faith and fair dealing was included in the Notice, precluding Wells Fargo from depriving Moore of the benefits of the agreement. He alleged the Plan was entered into pursuant to the HAMP guidelines and Wells Fargo was impliedly required to comply with the guidelines, including: notice, minimum duration of the forbearance period, extension and termination, and offering loss mitigation options upon expiration of the Plan.

         Moore alleged Wells Fargo breached the implied covenant by, among other things: “misle[ading] [him] regarding the terms of the Plan and extensions thereof, including leading [him] to believe that the Plan payments constituted full payments of his loan as implied by the Plan agreement as opposed to partial and incomplete payments, resulting in arrearages and default, and that the Plan would protect [him] from the foreclosure of the Property”; failing to provide notice of Moore's duty to pay the balloon payment despite his inquiries “as to any additional liabilities he might incur relative to the Plan contract”; purposely limiting the training of its agents; and failing to comply with the HAMP guidelines regarding the minimum Plan forbearance period of 12 months, various notice requirements, and criteria for considering a HAMP application.

         As a result of this alleged breach of the implied covenant, Moore was damaged in an amount to be shown according to proof.


         The Trial Court Arguments And Rulings


         Declaratory Relief

         On the first day of trial, prior to jury selection, the trial court asked the parties to argue their respective positions relating to the interpretation of the contract documents. The trial court explained it would exercise its power in equity by examining the contract documents to determine whether there was a contract and what the provisions or conditions of the contract were. If the trial court found no meeting of the minds or that the contract ...

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