BURTON v. NATIONSTAR MORTGAGE LLC Case No. CV F 13-0307 LJO GSA.
DENNIS BURTON, Plaintiff, v. NATIONSTAR MORTGAGE LLC, Defendant.
United States District Court, E.D. California.
May 29, 2013.
Nationstar Mortgage, LLC, Defendant, represented by
Erik Wayne Kemp, Severson & Werson, PC.
ORDER ON DEFENDANT'S F.R.Civ.P. 12 MOTION TO DISMISS (Doc. 8.)
LAWRENCE J. O'NEILL, District Judge.
PRELIMINARY STATEMENT TO THE PARTIES AND COUNSEL
Judges in the Eastern District of California carry the heaviest caseload in the nation, and this Court is unable to devote inordinate time and resources to individual cases and matters. This Court cannot address all arguments, evidence and matters raised by parties and addresses only the arguments, evidence and matters necessary to reach the decision in this order given the shortage of district judges and staff. The parties and counsel are encouraged to contact United States Senators Diane Feinstein and Barbara Boxer to address this Court's inability to accommodate the parties and this action. The parties are required to consider, and if necessary, to reconsider consent to a U.S. Magistrate Judge to conduct all further proceedings in that the Magistrate Judges' availability is far more realistic and accommodating to parties than that of U.S. District Judge Lawrence J. O'Neill who must prioritize criminal and older civil cases. A Magistrate Judge consent form is available on this Court's website.
Civil trials set before Judge O'Neill trail until he becomes available and are subject to suspension mid-trial to accommodate criminal matters. Civil trials are no longer reset to a later date if Judge O'Neill is unavailable on the original date set for trial. If a trial trails, it may proceed with little advance notice, and the parties and counsel may be expected to proceed to trial with less than 24 hours notice. Moreover, this Court's Fresno Division randomly and without advance notice reassigns civil actions to U.S. District Judges throughout the nation to serve as visiting judges. This action is under consideration for such reassignment. In the absence of Magistrate Judge consent, this action is subject to reassignment to a U.S. District Judge from outside the Eastern District of California. Case management difficulties, including trial setting and interruption, are avoided if the parties consent to conduct of further proceedings by a U.S. Magistrate Judge.
Defendant Nationstar Mortgage LLC ("Nationstar") seeks to dismiss as insufficiently pled plaintiff Dennis Burton's ("Mr. Burton's") contract and statutory claims arising from Nationstar's invalidating modification of a loan for Mr. Burton's Bakersfield property ("property"). Mr. Burton accuses Nationstar of dishonoring agreements to provide loan modifications and argues that his claims are factually and legally supported. This Court considered Nationstar's F.R.Civ.P. 12(b)(6) motion to dismiss on the record without a hearing. See Local Rule 230(g). For the reasons discussed below, this Court DISMISSES Mr. Burton's claims.
Nationstar serviced Mr. Burton's property loan and entered into an agreement with Mr. Burton to modify Mr. Burton's loan under the Home Affordable Modification Program ("HAMP"). Mr. Burton is a current Colorado citizen and formerly resided at the property. Nationstar determined that Mr. Burton's failure to reside on the property invalidated the loan modification and foreclosed on the property. Mr. Burton accuses Nationstar of wrongfully refusing to modify permanently Mr. Burton's and similarly situated borrowers' loans as required under HAMP although Mr. Burton and the other borrowers were qualified and satisfied HAMP requirements for permanent loan modification.
The Home Affordable Modification Program
The U.S. Department of Treasury ("DOT") established HAMP pursuant to the Emergency Economic Stabilization Act of 2008, which was amended in February 2009 by the American Recovery and Reinvestment Act of 2009, 12 U.S.C. §§ 5201, et seq. (collectively the "Act"). The Act directed DOT to protect home values and other assets of individuals, to preserve home ownership, to maximize returns to taxpayers, and to provide public accountability. HAMP was established pursuant to 12 U.S.C. §§ 5211 and 5219 and, as part of the Troubled Asset Relief Program ("TARP"), which authorizes DOT to purchase certain troubled assets. See 12 U.S.C. § 5211. To the extent DOT acquires mortgages, the Act directs DOT to maximize assistance of homeowners and to encourage mortgage servicers to take advantage of government programs to minimize foreclosures. See 12 U.S.C. § 5219. To further such goals, DOT, through Federal National Mortgage Association ("Fannie Mae"), entered into agreements with loan servicers. Nationwide and Fannie Mae entered into such an agreement in September 2009 and entitled "Amended and Restated Commitment to Purchase Financial Instrument and Servicer Participation Agreement," which committed Nationstar to perform certain loan modification and foreclosure prevention services for eligible loans.
Mr. Burton's HAMP Trial Period Plan
In December 2006, Mr. Burton obtained a nearly $300,000 property loan secured by a deed of trust on the property. By early 2009, Mr. Burton was in default and applied to Nationstar for a loan modification.
In April 2009, Mr. Burton and Nationstar entered into a Home Affordable Modification Trial Period Plan ("trial plan") under which Mr. Burton was to make three $1,921.58 monthly payments to remain eligible for a permanent loan modification. Mr. Burton made the trial plan payments for May through July 2009.
Nationstar sent Mr. Burton a Home Affordable Modification Agreement ("HAMA") to modify initially Mr. Burton's monthly payments to $1,915.20.
The HAMA initially states:
Under the HAMA "My Representations" section 1, Mr. Burton certified and represented that "I live on the Property as my principal residence" ("residence certification").
The HAMA's section 2 addresses "Acknowledgements and Preconditions to Modification" ("preconditions provision") by which Mr. Burton noted his understanding and acknowledgement that:
The HAMA's section 3 addresses "The Modification" ("modification provision") and provides:
Mr. Burton signed the HAMA on August 29, 2009 and returned it to Nationstar, which signed the HAMA on October 9, 2009 and returned it to Mr. Burton. Mr. Burton "telephoned Nationstar repeatedly, and was told that all the paperwork had been received and that Nationstar simply had to `book' the modification." Mr. Burton continued to make $1,915.20 payments set forth in the trial plan. "During this time," Mr. Burton received a notice of trustee's sale that the property had been sold. Nationstar assured Mr. Burton "this was not an actual foreclosure and again, that the permanent modification simply needed to be `booked.'"
After several months, Nationstar refused to honor the HAMA to modify Mr. Burton's loan documents. Nationstar's March 7, 2010 letter indicated that it was terminating the HAMA and dropping Mr. Burton from HAMP because the property was not "owner occupied" although Mr. Burton's wife and children resided full time at the property. Mr. Burton "was temporarily working in Colorado and would return periodically to California and stay at the Bakersfield property when he visited." Mr. Burton "took such employment when it became evident that Nationstar was defaulting on the [HAMA] and Burton would need additional income to save his home."
Nationstar refused to reinstate the HAMA and foreclosed on the property.
Mr. Burton's Claims
The complaint alleges that Nationstar used non-owner occupation of the property "as a pretext" to not honor the HAMA although "Nationstar had no such authority to re-evaluate Burton's eligibility in March 2010, several months after his [HAMA's] Modification Effective Date." The complaint alleges contract and statutory claims (discussed below) for Mr. Burton and similarly situated borrowers for Nationstar's "intentional and systematic failure to provide permanent loan modifications to borrowers" who signed HAMAs under HAMP. The complaint further alleges that "Nationstar refuses to correct known errors, misrepresents to borrowers that they must be in default to participate in the HAMP, improperly reviews borrowers after their Modification Effective Dates, fails to provide approvals and denials within reasonable periods of time, fails to adequately hire and train staff to effectuate loan modifications, routinely loses borrower HAMP applications and related paperwork, and otherwise routinely disregards HAMP directives and guidelines."
F.R.Civ.P. 12(b)(6) Motion To Dismiss Standards
Nationstar contends that the complaint's claims fail given Nationstar's "contractually authorized reason for invalidating the HAMA."
A F.R.Civ.P. 12(b)(6) dismissal is proper where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balisteri v. Pacifica Police Dept.,
In addressing dismissal, a court must: (1) construe the complaint in the light most favorable to the plaintiff; (2) accept all well-pleaded factual allegations as true; and (3) determine whether plaintiff can prove any set of facts to support a claim that would merit relief. Cahill v. Liberty Mut. Ins. Co.,
A plaintiff is obliged "to provide the `grounds' of his `entitlement to relief' [which] requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 554,
In Ashcroft v. Iqbal, 556 U.S. 662,
After discussing Iqbal, the Ninth Circuit summarized: "In sum, for a complaint to survive [dismissal], the non-conclusory `factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Service,
The U.S. Supreme Court applies a "two-prong approach" to address dismissal:
Iqbal, 556 U.S. 662, 129 S.Ct. at 1949-1950.
Moreover, a court may consider exhibits submitted with the complaint. Durning v. First Boston Corp.,
Lastly, under F.R.Evid. 201, a court may take judicial notice of "matters of public record." Lee v. City of Los Angeles,
With these standards in mind, this Court turns Nationwide's challenges to the complaint's claims.
Breach Of Contract
The complaint's (first) breach of contract claim alleges that Nationstar breached the HAMA by failing to modify permanently Mr. Burton's loan and foreclosing on the property. More specifically, the breach of contract claim alleges that:
Nationstar characterizes breach of contract as "the crux of his case" and argues that under the HAMA, modification was not effective and was terminated properly by Nationstar.
Nationstar argues the absence of a contract breach given the complaint's acknowledgment that Mr. Burton did not satisfy a condition precedent of residing on the property.
"A contract is unenforceable if a condition precedent is not met." Willard v. Valley Forge Life Ins. Co.,
With the HAMA's residence certification, Mr. Burton certified that he lived "on the Property as my principal residence." The HAMA's preconditions provision provides that Loan Documents will not be modified if "prior to the Modification Effective Date as set forth in Section 3 the Lender determines that my representations in Section 1 are no longer true and correct." The HAMA's Section 3 modification provision provides that Mr. Burton's Loan Documents will be modified effective August 1, 2009, if the Section 1 representations, including the residence certification, "continue to be true in all material respects and all preconditions to the modification set forth in Section 2 have been met."
Nationstar contends that complaint acknowledges Mr. Burton's Colorado residence to invalidate the residence certification, compliance with which was a condition precedent to loan modification. See Reynoso v. IndyMac Mortg. Services, FSB, 2013 WL 388990, at n. 2 (D. Md. 2013) ("the relevant property in Riverdale, Maryland, does not appear to be Ms. Reynoso's principal residence, which would disqualify Ms. Reynoso from a HAMP loan modification"). Nationstar argues that the HAMA's preconditions provision does not obligate Nationstar to verify the truth of the residence certification prior to the Modification Effective Date. Nationstar notes that the preconditions provision only states "what will occur if the lender happens to find out the representations are no longer true." Nationstar concludes that in the absence of its duty to verify the residence certification, "there was no breach in failing to do so before the Modification Effective Date."
Nationstar notes that August 1, 2009 is the effective date to modify Loan Documents, if all conditions, including continued adherence to the residence certification, are met. Nationstar argues that since it did not sign the HAMA until October 9, 2009, modification was dependent on Mr. Burton's adherence to the residence certification up to that date. Nationstar summarizes that "the HAMA's condition precedent cannot reasonably be read to require only that the borrower's representations be true on the Modification Effective Date (here, August 1, 2009) and not thereafter."
In addition, Nationstar challenges the complaint's failure to allege specifically that Mr. Burton resided on the property on October 9, 2009, when Nationstar signed the HAMA to effectuate it. Nationstar argues that Mr. Burton cannot rely on a representation in his opposition papers that he resided on the property in January 2010. "In determining the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond the complaint to a plaintiff's moving papers, such as a memorandum in opposition to a defendant's motion to dismiss." Schneider v. Cal. Dep't. of Corr.,
Mr. Burton responds that conditions precedent were satisfied because as of October 9, 2009, when Nationstar signed the HAMA, Mr. Burton resided on the property. Mr. Burton continues that as of no later than October 9, 2009, Nationstar had manifested its assent to the HAMA and "a contract was formed with an Effective Date of August 1, 2009." "[T]o form a contract, both parties must express their mutual assent by outward manifestations of consent which would lead a reasonable person to believe that the parties had reached an agreement." Avel Pty. Ltd. v. Breaks, 1993 WL 11867, at *4 (9
Mr. Burton argues that the complaint does not imply that his residence certification was untrue when Nationstar signed the HAMA in that the complaint alleges Mr. Burton took Colorado employment "when it became evident that Nationstar was defaulting on the [HAMA] and Burton would need additional income to save his home." Mr. Burton concludes that his residence certification remained true through the time Nationstar signed the HAMA and "became obligated to perform." Mr. Burton contends that the HAMA does not grant Nationstar "unfettered authority" of continuous review of the residence certification to cancel the HAMA. Mr. Burton claims that Nationstar breached the HAMA by terminating it based on a post-Modification Effective Date determination as to Mr. Burton's occupancy.
The modification provision sets August 1, 2009 to modify Loan Documents if the residence certification continues to be true. The HAMA is silent as to the duration of the residence certification, that is, for how long the borrower must occupy the property. The preconditions provision contemplates that if "prior to the Modification Effective Date," the residence certification is "no longer true and correct, the Loan Documents will not be modified and this Agreement will terminate." The key words are "prior to the Modification Effective Date." There is no dispute that the Modification Effective Date was no later than October 9, 2009. Up to that date, Nationstar was empowered to terminate the HAMA if the residence certification was not met. Nothing in the complaint indicates that Mr. Burton did not occupy the property as of October 9, 2009. Likewise, nothing in the complaint indicates that Mr. Burton occupied the property as of October 9, 2009. The complaint alleges that Mr. Burton took Colorado employment "when it became evident that Nationstar was defaulting" based on "a pretext for not honoring" the HAMA. The complaint and its inferences raise uncertainty whether Mr. Burton occupied the property as of August 1, 2009 or October 9, 2009 to satisfy the residence certification. Such uncertainty subjects the breach of contract claim to dismissal with leave to amend to confirm whether Mr. Burton resided on the property to satisfy the residence certification as a condition precedent to effectuate the HAMA.
Breach Of The Implied Covenant Of Good Faith And Fair Dealing
The complaint's (second) breach of the implied covenant of good faith and fair dealing claim ("implied covenant claim") alleges that Nationstar abused its authority under the HAMA and frustrated borrowers' ability to obtain benefits of HAMAs by "failing to `book,' record, otherwise cause" modifications to be put into effect.
Nationstar argues that the implied covenant claim fails on the same grounds as does the breach of contract claim in that the implied covenant "does not prohibit what the express terms of the contract permits." "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.,
"[T]he implied covenant will only be recognized to further the contract's purpose; it will not be read into a contract to prohibit a party from doing that which is expressly permitted by the agreement itself." Wolf v. Walt Disney Pictures and Television,
Nationstar contends that "the HAMA's express terms authorized Nationstar to invalidate the HAMA when it learned Burton's section 1 representations were not true." Nationstar points to the absence of an implied covenant to preclude Nationstar's refusal to modify loan documents when it discovered that Mr. Burton did not live in the property. Nationstar notes that it did not promise or imply that it would process the HAMA more quickly "so he could move from Bakersfield sooner without ill effect."
Mr. Burton responds that the HAMA did not allow Nationstar to invoke the residence certification and preconditions provision after the August 1, 2009 Modification Effective date or after Nationstar's October 9, 2009 signing of the HAMA. Mr. Burton continues that Nationstar was not allowed a continuous review of the residence certification to invoke grounds to terminate the HAMA. Mr. Burton argues that the HAMA obligated Nationstar to modify his loan after Mr. Burton met necessary conditions and that the complaint adequately alleges that Nationstar abused its discretion to delay "booking the modification."
The complaint alleges that under the HAMA, Mr. Burton was entitled to loan modification and to receive such benefit upon his satisfaction of modification conditions. As noted above, the complaint is unclear whether Mr. Burton satisfied the residence certification as of October 9, 2009, when Nationstar signed the HAMA. With such uncertainty, the complaint lacks sufficient facts that Nationstar exceeded HAMA terms by terminating the HAMA on grounds not contemplated by the HAMA and as a pretext. Without clarity of Mr. Burton's satisfaction of the residence certification, the complaint fails to establish that Nationstar exceeded what it was expressly permitted to do, that is, terminate the HAMA based on Mr. Burton's failure to satisfy the residence certification. The implied covenant claim fails but is subject to amendment.
The complaint's (third) promissory estoppel claim alleges that Nationstar "failed to honor its promise" to modify permanently Mr. Burton's loan. The promissory estoppel claim further alleges that had Mr. Burton "known that Nationstar would subsequently improperly refuse to permanently modify his loan, he would have engaged in other efforts to save his home, performed "efficient breaches," declared bankruptcy, or taken other alternatives that did not involve "paying additional monies to Nationstar for essentially nothing in return."
Nationstar argues that promissory estoppel does not apply given that lack of consideration is not an issue.
Under the promissory estoppel doctrine, "a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement." Youngman v. Nevada Irrigation Dist.,
Promissory estoppel is "a doctrine which employs equitable principles to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced." Raedeke v. Gibraltar Sav. & Loan Assn.,
A "promise is an indispensable element of the doctrine of promissory estoppel," which "cannot be invoked and must be held inapplicable in the absence of a showing that a promise had been made upon which the complaining party relied to his prejudice." Division of Labor Law Enforcement v. Transpacific Transportation Co.,
Nationstar argues that the complaint addresses failure to satisfy a condition precedent, which promissory estoppel cannot cure. As such, Nationstar contends that the lack of consideration is not at issue to invoke promissory estoppel. Nationstar further challenges detrimental reliance allegations given Mr. Burton's existing loan payment obligations and the conclusory allegations of possible actions Mr. Burton could have taken to avoid foreclosure.
Mr. Burton responds that Nationstar's claim of absence of contract formation "open[s] the door for alternative quasi-contractual claims." Mendez v. Bank of America Home Loans Servicing, LP,
By attacking contract formation, Nationstar puts into issue a quasi-contract claim such as promissory estoppel. As such, Mr. Burton is not precluded to attempt to allege a promissory estoppel claim. Nonetheless, Nationstar is correct that the complaint lacks sufficient facts to support detrimental reliance given limited references to declaring bankruptcy or devoting monies other than to additional payments to Nationstar. The complaint fails to explain an "efficient breach," which presumably addresses a breach of the trial plan or HAMA. Mr. Burton proffers no facts to indicate his more viable options to foreclosure. There are no facts that Mr. Burton contemplated bankruptcy, consulted a bankruptcy attorney, or had other options to preclude foreclosure. Given the complaint's allegations of Nationstar's delay, the complaint suggests that Mr. Burton had an opportunity to exercise options other than modification but chose not to. The promissory estoppel claim fails in the absence of sufficient facts to support Mr. Burton's detrimental reliance. Mr. Burton is granted leave to amend the promissory estoppel claim.
The complaint's (fourth) fraudulent misrepresentation claim accuses Nationstar of misrepresenting that, if Mr. Burton's certifications continued to be true, as determined by Nationstar prior to the Modification Effective Date, the HAMA would amend and supplement Loan Documents, which would automatically modify on the Modification Effective Date. The fraud claim further alleges that Nationstar failed to honor is promise to modify permanently Mr. Burton's loan.
Nationstar faults the complaint's vagueness and absence of facts to satisfy fraud elements and F.R.Civ.P. 9(b) pleading requirements.
The elements of a California fraud claim are: (1) misrepresentation (false representation, concealment or nondisclosure); (2) knowledge of the falsity (or "scienter"); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. Lazar v. Superior Court,
"[T]o establish a cause of action for fraud a plaintiff must plead and prove in full, factually and specifically, all of the elements of the cause of action." Conrad v. Bank of America,
Particularity Pleading Standard
Nationwide faults the complaint's absence of specificity to satisfy F.R.Civ.P. 9(b).
F.R.Civ.P. 9(b) requires a party to "state with particularity the circumstances constituting fraud."
F.R.Civ.P. 9(b)'s heightened pleading standard "is not an invitation to disregard Rule 8's requirement of simplicity, directness, and clarity" and "has among its purposes the avoidance of unnecessary discovery." McHenry v. Renne,
In Re Glenfed, Inc. Securities Litigation,
Nationstar argues that the HAMA does not represent that if Mr. Burton's representations continued to be true as determined by Nationstar prior to the Modification Effective Date, the HAMA would modify Mr. Burton's loan documents as of the Modification Effective Date, or August 1, 2009. Nationstar points to the HAMA's modification provision to the effect that if Nationstar learns prior to the Modification Effective Date that the residence certification is not true, there will be no loan modification. Nationwide argues that the HAMA fails to promise modification if the residence certification does not continue to be true through Nationwide's belated HAMA signature well after the Modification Effective Date.
Mr. Burton responds that the HAMA allowed Nationstar to terminate the HAMA if, prior to the Modification Effective Date, Nationstar determined that Mr. Burton failed to continue to satisfy the residence certification. Mr. Burton characterizes the HAMA to represent that Nationstar was committed to make such determination prior to the Modification Effective Date.
As noted above, the preconditions provision contemplates that if "prior to the Modification Effective Date," the residence certification is "no longer true and correct, the Loan Documents will not be modified and this Agreement will terminate." There is no dispute that the Modification Effective Date was no later than October 9, 2009. Through the HAMA, Nationstar represented that:
The complaint identifies adequate representations to support a fraud claim, assuming Mr. Burton satisfied the residence certification at the requisite time.
The fraud claim further alleges that had Mr. Burton known that Nationstar would improperly refuse to permanently modify his loan, he would have engaged in other efforts to save his home, performed "efficient breaches," declared bankruptcy, or taken other alternatives that did not involve "paying additional monies to Nationstar for essentially nothing in return."
Nationstar further challenges the complaint's absence of facts to support Mr. Burton's justifiable reliance as Mr. Burton remained obligated to make loan payments and foregoing a chance to breach his obligations or to file bankruptcy does not constitute justifiable reliance.
Mr. Burton responds that absent his reliance on Nationstar's representations as to loan modification, Mr. Burton had several months remaining to pursue other "realistic" alternatives to avoid foreclosure.
The fraud claim must satisfy F.R.Civ.P. 9(b) particularity and fails to do so as to reliance elements. To support justifiable reliance, the complaint points to Mr. Burton's foregoing "efficient breaches," bankruptcy, or other alternatives. The complaint fails to explain sufficiently Mr. Burton's failure or inability to pursue such alternatives. The complaint merely raises inferences that Mr. Burton chose loan modification over other alternatives but does not explain Mr. Burton's rationale or grounds to do so. Nationstar raises valid points to attack the fraud claim which is subject to dismissal with leave to amend.
The complaint's (fifth) unjust enrichment/restitution claim alleges that Mr. Burton "conferred benefits on Nationstar, including monthly payments that shouldn't have been made and in the form of [his] home which shouldn't have been foreclosed." The unjust enrichment claim seeks "restitution by returning monies paid during and after the trial periods where no permanent modification was provided" and restoring possession of Mr. Burton's wrongfully taken home.
Nationstar notes that as Mr. Burton's loan servicer, it was entitled to receive his payments. Nationstar points to Carswell v. JP Morgan Chase Bank N.A., 2012 WL 6053168, at *1 (9
Mr. Burton notes that inequity arises "to allow a servicer to take a borrower's money under the pretense that a loan modification will be offered when, in reality, it will never be implemented." Mr. Burton further supports the unjust enrichment claim by accusing Nationstar of dragging out the loan modification process and siphoning away money from defaulting borrowers.
Mr. Burton offers hyperbole, nothing meaningful, to support the unjust enrichment/restitution claim. Mr. Burton points to no facts or potential facts to reflect unjust enrichment or inequity to warrant restitution. Mr. Burton ignores the benefit he received to continue to remain in the property when he made trial plan payments and that foreclosure resulted from his inability to satisfy his original loan obligations. This Court construes Mr. Burton's absence of meaningful support for the unjust enrichment/restitution claim as his inability to do so to warrant dismissal of the unjust enrichment claim.
Consumer Legal Remedies Act
The complaint's (sixth) claim proceeds under the California Consumer Legal Remedies Act ("CLRA"), Cal. Civ. Code, §§ 1750, et seq., to allege that "Nationstar's practices constitute unfair practices under the CLRA."
Nationwide challenges the applicability of the CLRA.
The CLRA renders unlawful "unfair methods of competition and unfair or deceptive acts or practices undertaken by any person in a transaction intended to result or which results in the sale or lease of goods or services to any consumer." Cal. Civ. Code, § 1770(a). The CLRA defines "goods" as "tangible chattels bought or leased for use primarily for personal, family, or household purposes." Cal. Civ. Code, § 1761(a). The CLRA defines "services" as "work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods." Cal. Civ. Code, § 1761(b).
Nationwide notes that a real property loan or modification "is not a good or service" subject to the CLRA. See Consumer Solutions REO, LLC v. Hillery,
Nationstar further challenges the CLRA claim as conclusory given its mere allegation that "Nationstar's practices constitute unfair business practices under the CLRA." Nationstar notes that the CLRA prohibits specific delineated conduct, none of which the complaint identifies or alleges.
Mr. Burton responds that the CLRA "applies to a broad range of services, including mortgage loans and modifications." Mr. Burton equates loan modification to financial services subject to CLRA. Mr. Burton argues that Nationstar's "alleged false statements regarding the timing of when it would permanently modify borrowers' loans falls neatly" within CLRA prohibitions.
This Court disagrees with Mr. Burton's conclusions and those of the non-binding authorities he cites. This Court is unconvinced that Nationstar's loan modification activities amount to a "sale or lease of goods or services" subject to the CLRA given the CLRA's emphasis to remedy wrongs in connection with goods and related services. Mr. Burton attempts to stretch CLRA liability to a point not contemplated by the CLRA. This Court is not prepared to equate Nationstar's alleged loan modification deficiencies as prohibitions in connection with goods or services subject to the CLRA. The complaint's failure to tether meaningfully Nationstar's alleged wrongs to a CLRA violation is fatal to the complaint's CLRA claim. A purported CLRA claim is subject to dismissal.
Equal Credit Opportunity Act
The complaint's eighth claim alleges violations of the Equal Credit Opportunity Act ("ECOA"), 15 U.S.C. §§ 1691, et seq., that Nationstar failed to provide notice of action taken on Mr. Burton's applications and to provide specific reasons for denial within 30 days of receipt of completed or incomplete applications.
Nationstar argues that an ECOA claim fails in that Mr. Burton was in default. ECOA regulations exclude from an "adverse action" "[a]ny action or forbearance relating to an account taken in connection with . . . default, or delinquency as to that account." Nationstar points to Federal Reserve Board Consumer Affairs Letter No. CA 09-13, which provides that under ECOA regulations, "a creditor is not required to provide an adverse action notice to a borrower whose account is currently delinquent or in default." Nationstar concludes that given Mr. Burton's default, "any action taken with respect to it was not `adverse action' for ECOA purposes."
Mr. Burton concedes that he lacks an ECOA claim. As such, the ECOA claim is dismissed.
Unfair Business Practices
The complaint's seventh claim proceeds under the California Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code, §§ 17200, et seq. Nationwide challenges the complaint's absence of facts to support its unlawful, unfair or fraudulent business practices.
"Unfair competition is defined to include `unlawful, unfair or fraudulent business practice and unfair, deceptive, untrue or misleading advertising.'" Blank v. Kirwan,
"A plaintiff alleging unfair business practices under these statutes [UCL] must state with reasonable particularity the facts supporting the statutory elements of the violation." Khoury v. Maly's of California, Inc.,
Unlawful Business Practice
The UCL claim alleges an unlawful business practice based on Nationstar's violations of the ECOA "requirement that lenders provide timely answers on credit applications, as well as numerous provisions of the HAMP directives that prohibit the charging of late fees, dual tracking, falsely telling borrowers they need to be in default to qualify, reevaluating borrowers after their Modification Effective Dates, and otherwise grossly mishandling its borrowers' HAMP applications and contract documents."
Nationstar points to the complaint's lack of allegations of its illegal conduct to support an unlawful business practice.
An "unlawful business activity" includes anything that can properly be called a business practice and that at the same time is forbidden by law. Blank, 39 Cal.3d at 329,
The UCL prohibits "unlawful" practices "forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made." Saunders v. Superior Court,
A fellow district court has explained the borrowing of a violation of law other than the UCL:
Rubio v. Capital One Bank,
Nationstar argues that an alleged ECOA adverse action fails to support a UCL unfair business practice because Mr. Burton's default did not obligate Nationstar to send Mr. Burton an adverse action notice under the ECOA. Nationstar faults its purported HAMP violations as conclusory and unsupported by sufficient facts.
Nationstar further challenges a UCL unfair business practice based on a HAMP violation in absence of a private right of action under HAMP. A fellow district court explains the absence of a private right of action under HAMP:
Marks v. Bank of America, N.A., 2010 WL 2572988, at *5, 6 (D. Az. 2010); see Pantoja v. Countrywide Home Loans, Inc.,
"[T]here is no express or implied private right of action to sue lenders or loan servicers for violation of HAMP." Cleveland v. Aurora Loan Services, LLC, 2011 WL 2020565, at *4 (N.D. Cal. 2011); see, Manabat v. Sierra Pac. Mortg. Co., 2010 WL 2574161 at *11 (E.D. Cal. 2010) (dismissing plaintiff's wrongful foreclosure claim because there is no private right of action for HAMP violations against lenders that receive HAMP funds); Simon v. Bank of Am., N.A., 2010 WL 2609436 at *7 (D. Nev. 2010) ("[C]ourts have consistently held that [HAMP] does not provide borrowers with a private cause of action against lenders for failing to consider their application for loan modification, or even to modify an eligible loan"); see also Carrasco v. HSBC Bank USA, N.A., 2012 WL 646251, at 5 (N.D. Cal. 2012) (plaintiffs failed to demonstrate that HAMP requires "that a lender enter into a loan modification, as opposed to simply encouraging that lenders work with borrowers to avoid foreclosures").
Moreover, reliance on HAMP to support breach of contract or negligence claims and in turn a UCL claim is misplaced. See Marks, 2010 WL 2572988 at *6 ("Plaintiff is precluded from asserting a private cause of action under the HAMP, even disguised as a breach of contract claim"); Ming'ate v. Bank of America, N.A., 2011 WL 4590431, at *6 D. Minn. 2011) ("HAMP creates no duty for lenders to make loan modifications or to do so in a timely fashion; as a result, Plaintiffs' negligence claim is dismissed").
To support an unlawful business practice, Mr. Burton points to complaint allegations to the effect that "Nationstar makes false statements to borrowers and performs re-evaluations months after it is allowed to." Mr. Burton further notes the complaint "details how Burton received foreclosure notices while he was being considered for a loan modification — a plain allegation of dual tracking."
The complaint fails to state with reasonable particularity the underlying unlawful business activity to support a UCL claim. Mr. Burton is unable to rely on ECOA deficiencies with dismissal of the ECOA claim. Reliance on purported HAMP irregularities is misplaced given the complaint's conclusory allegations and failure to pinpoint Nationstar's actionable HAMP violation as to Mr. Burton. Mr. Burton's further points regarding false statements, belated re-evaluations, and dual tracking fail to substantiate unlawful business activity under the UCL.
Unfair Business Practice
The UCL claim alleges that Nationstar engaged in unfair conduct with its serial breaches of HAMAs, misleading borrowers regarding ability to obtain loan modifications, and foreclosure despite borrowers' compliance with trial plan and HAMA requirements.
Nationstar contends that the complaint's conclusory allegations fail to support that Nationstar committed a UCL unfair business practice.
"Unfair" under the UCL "means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition." Cal-Tech Communications, Inc. v. Los Angeles Cellular Telephone,
Nationstar faults the complaint's absence of allegations that it breached Mr. Burton's or any other borrower's HAMA or that Mr. Burton or any other borrower complied with HAMA requirements but was foreclosed upon.
To support an unfair business practice claim, Mr. Burton asserts that the complaint "details how Nationstar delays its converting of borrowers with signed [HAMAs] to permanent modification by dragging its feet instead of taking steps necessary to `book' modification or otherwise ensure that it becomes automatically effective upon the modification effective date."
Mr. Burton offers little meaningful support of a unfair business practice claim and relies on generalities of Nationstar's delay. The complaint fails to state with reasonable particularity unfair business practices to support a UCL claim.
Fraudulent Business Practice
The UCL claim alleges that Nationstar's conduct violated "the UCL's fraudulent prong."
The "fraudulent" prong under the UCL requires a plaintiff to "show deception to some members of the public, or harm to the public interest," Watson Laboratories, Inc. v. Rhone-Poulenc Rorer, Inc.,
Nationstar faults the complaint's failure to identify its specific fraud given the UCL claim's reliance on allegations that Nationstar misrepresented that if Mr. Burton's residence certification remained true, as determined by Nationstar prior to the Modification Effective Date, his loan documents would automatically modify on the Modification Effective Date. Nationstar further challenges allegations of Nationstar's "scheme to defraud" (complaint paras. 72-76)
Mr. Burton responds that Nationstar falsely represents in its HAMAs "that it will permanently modify its borrowers' loans and that any review that could result in a termination decision would occur `prior to the Modification Effective Date.'"
Similar to the unlawful and unfair business practices claims, the UCL claim lacks necessary precision to support fraud under the UCL. The UCL claim rests on generalities, not reasonable particularity, to attempt to allege fraudulent business practices.
Nationstar further challenges Mr. Burton's standing to pursue UCL relief in the absence of allegation of his economic injury.
California Business and Professions Code section 17204 limits standing to bring a UCL claim to specified public officials and a private person "who has suffered injury in fact and has lost money or property as a result of the unfair competition." "This provision requires [plaintiff] to show that she has lost `money or property' sufficient to constitute an `injury in fact' under Article III of the Constitution, see Birdsong v. Apple, Inc.,
Business and Professions Code section 17203 addresses UCL relief and provides in pertinent part:
"In a suit under the UCL, a public prosecutor may collect civil penalties, but a private plaintiff's remedies are `generally limited to injunctive relief and restitution.'" Kasky v. Nike, Inc.,
The complaint lacks facts of Mr. Burton's money or property allegedly lost in that he was obligated to pay his loan and faced foreclosure if he failed to meet his obligations. Nationstar's servicing of Mr. Burton's loan and pursuit of loan modification did not relieve Mr. Burton of his obligations. Mr. Burton's alleged incurrence of late fees originally waived by the HAMA fail to substantiate requisite money or property lost given the absence of allegations that he directly paid such amounts out of pocket. Mr. Burton's reliance on discovery to ferret out his injury is unavailing as he is in a position to know such information.
In addition, the complaint lacks facts to support Mr. Burton is entitled to restitution. The "notion of restoring something to a victim of unfair competition includes two separate components. The offending party must have obtained something to which it was not entitled and the victim must have given up something which he or she was entitled to keep." Day v. AT & T Corp.,
The complaint lacks facts, and Mr. Burton points to none, to support an unlawful, unfair or fraudulent business claim and Mr. Burton's standing to seek UCL relief to warrant dismissal of the UCL claim.
CONCLUSION AND ORDER
For the reasons discussed above, this Court:
IT IS SO ORDERED.
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