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Richard A. Doran and Patricia R. Doran, Individually and As Trustees of the Richard A. Doran v. Wells Fargo Bank

October 31, 2011


The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge


Before the Court is Defendant Wells Fargo Bank, National Association's*fn1 ("Defendant") Motion to Dismiss First Amended Complaint Filed June 13, 2011 ("Motion"), filed on June 27, 2011. Plaintiffs Richard A. Doran and Patricia R. Doran, individually and as trustees of the Richard A. Doran and Patrician R. Doran Family Trust ("the Trust", all collectively "Plaintiffs") filed their memorandum in opposition on September 13, 2011, and Defendant filed its reply on September 27, 2011. This matter came on for hearing on October 17, 2011. Appearing on behalf of Defendant was Audrey Yap, Esq., and appearing on behalf of Plaintiffs was David Cain, Esq., by telephone. After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, Defendant's Motion is HEREBY GRANTED IN PART AND DENIED IN PART for the reasons set forth below.


Richard and Patricia Doran, individually ("the Dorans"), filed the original complaint pro se in the State of Hawai`i Circuit Court of the Second Circuit on February 8, 2011. The Dorans alleged numerous claims against Defendant in relation to the loan modification process for, and eventual foreclosure on, their home at 3360 Kua`au Place, Kihei, Hawai`i 96753 ("the Property"). Defendant removed the action based upon diversity jurisdiction on March 2, 2011. [Notice of Removal, filed 3/2/11 (dkt. no. 1-1), at ¶ 5.] A week later, Defendant filed a Motion to Dismiss, arguing that the Dorans failed to state a claim upon which relief could be granted and that the Dorans lacked standing since the Trust holds title to the Property at issue. The Dorans obtained counsel while the motion was pending.

On May 31, 2011, the Court issued an order granting Defendant's Motion to Dismiss ("May 31, 2011 Order"). Doran v. Wells Fargo Bank, et al., Civil No. 11-00132 LEK-BMK, 2011 WL 2160643 (D. Hawai`i May 31, 2011). The Court dismissed with prejudice the Dorans' claims of unfair and deceptive trade practices under Washington law, slander of title, slander of credit, and negligent infliction of emotional distress.

The Court dismissed without prejudice the Dorans' claims of fraud, wrongful foreclosure, intentional infliction of emotional distress ("IIED"), and loss of consortium. Id. at *16. The Court required the Dorans to include the Trust as a named plaintiff in any subsequent amended complaint that claims fraud or wrongful foreclosure because the Trust, as title-holder to the Property, is the allegedly injured party in these claims. Id.

Plaintiffs filed their First Amended Complaint on June 13, 2011, in accordance with May 31, 2011 Order. The First Amended Complaint names the Dorans as plaintiffs in their individual capacities and as trustees of the Trust. The First Amended Complaint alleges all of the counts that the May 31, 2011 Order dismissed without prejudice: Count I - fraud; Count II -wrongful foreclosure; Count III - IIED; and Count IV - loss of consortium. The factual allegations common to all counts are identical to those in the original complaint, [First Amended Complaint at ¶¶ 1-28,] with the exception of the allegations discussing the Trust [id. at ¶¶ 1-2, 5].

The principal changes from the original complaint to the First Amended Complaint are expanded recitations of the claims. As to Count I (fraud), Plaintiffs newly allege that, when Defendant encouraged Plaintiffs to apply for a loan modification and told them that they were "pre-qualified", Defendant "had no intention of giving them a loan modification."

[Id. at ¶¶ 30-33.] Further, Defendant "refused to update its files" regarding the loan modification and foreclosed on the Property in spite of its representations to Plaintiffs. [Id. at ¶¶ 37, 39.] The First Amended Complaint also alleges that Defendant benefitted from the misrepresentation by charging late fees, claiming a larger tax loss, and acquiring the Property, which Defendant knew would eventually appreciate. [Id. at ¶¶ 35-36.] As to Count II (wrongful foreclosure), Plaintiffs allege that Defendant did not give proper notice of the impending foreclosure, as required under Hawai`i Revised Statutes Chapter 667, because "Plaintiffs were being assured they were being considered for loan modification." [Id. at ¶¶ 41-42.] Plaintiffs also allege that the foreclosure protections under 2011 Haw. Sess. Laws Act 48 ("Act 48") apply. [Id. at ¶ 43.] For Count III (IIED), Plaintiffs allege that the misrepresentation that Plaintiffs were "pre-qualified" for a loan modification, the cancellation of the modification process, and the subsequent foreclosure, "intentionally or recklessly injured Plaintiffs." [Id. at ¶¶ 45-46.] Plaintiffs claim that, as a result, they have suffered "sleeplessness, health-effects from stress, and loss of consortium." [Id. at ¶ 49.] Count IV alleges that "[a]s a proximate result of the negligent actions of Wells Fargo, Plaintiffs' marriage has been affected and as a consequence, has impaired their society and services." [Id. at ¶ 52.]

Plaintiffs ask the Court to enjoin any actions relating to the transfer of the Property to Defendant or to a third-party buyer; consequential damages; fees and costs pursuant to any written loan agreement binding Defendant; and any other appropriate relief.

I. Motion

In the instant Motion, Defendant first points out that, on April 6, 2005, the Dorans, as Trustees of the Trust, executed a Promissory Note secured by a Mortgage ("First Note" and "First Mortgage")*fn2 as Trustees under the Trust. The principal amount of the First Note was $926,000.00, and the First Mortgage gave Defendant a security interest in the Property. Defendant subsequently sold, assigned and transferred its interest in the First Note and First Mortgage to U.S. Bank N.A., as Successor Trustee to Wachovia Bank N.A. for WFASC 2005-AR13 ("U.S. Bank"). One of Defendant's divisions, Wells Fargo Home Mortgage, Inc., is and was U.S. Bank's servicing agent for the First Mortgage. [Mem. in Supp. of Motion at 2-3.]

On May 21, 2007, the Dorans, as Trustees of the Trust, also executed another promissory note and another mortgage ("Second Note" and "Second Mortgage") in favor of Defendant.*fn3

The principal amount of the Second Note was $200,000.00, and the Second Mortgage gave Defendant a security interest in the Property. Defendant states that, on or about October 1, 2009, the Trust defaulted under the terms of the First Note and First Mortgage. Defendant served a Notice of Mortgagee's Intention to Foreclose ("Foreclosure Notice") on the Trust on April 19, 2010.*fn4

[Id. at 3-4.]

Defendant argues that Plaintiffs fail to state a claim for fraud because they have failed to plead fraud with particularity as required by Fed. R. Civ. P. 9(b). Defendant argues that Plaintiffs failed to follow the "ample guidance" given in the May 31, 2011 Order on how to rectify the defects in the original complaint. [Id. at 2.] Defendant contends that the First Amended Complaint does not sufficiently allege the circumstances of fraud, specifically, the "time, place, and content of the fraudulent representation." [Id. at 6-7 (citing Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1042 (9th Cir. 2010)).] Plaintiffs allege that Defendant made false representations to them when they were applying for a loan modification. The First Amended Complaint does not specify who made the purportedly false representations, what representations were made, how the representations were expressed, why the representations were false, and when and where the representations were made. [Id. at 7 (citing Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003); Swartz v. KPMG LLP, 476 F.3d 757, 764 (9th Cir. 2007); Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009)).] Defendant argues that, because Plaintiffs provided insufficient detail regarding the alleged misrepresentations, Plaintiffs failed to put Defendant on notice of the alleged misconduct. [Id. at 8.] Further, Defendant contends that Plaintiffs have not alleged that they detrimentally relied on the allegedly fraudulent statements, as their position is not worse as a result of those statements. [Id. at 8-9 (citing Fisher v. Grove Farm Co., 123 Hawai`i 882, 103, 230 P.3d 382, 403 (2009)).]

Defendant argues that Plaintiffs' wrongful foreclosure claim fails because there is no basis in law or fact to conclude that the foreclosure was wrongful. Defendant emphasizes that Plaintiffs admit they failed to make timely payments on the Mortgages, and Defendant therefore argues that the foreclosure was proper under existing law. [Id. at 9 (citing Johnson v. Ass'n of Apt. Owners of Ke Aina Kai Townhomes, 2006 U.S. Dist. LEXIS 61106, at *25-26 (D. Haw. 2006)).] Defendant argues that Plaintiffs received the Foreclosure Notice, and that discussing a possible loan modification does not vitiate notice of a non-judicial foreclosure under Haw. Rev. Stat. § 667-5. [Id. at 9-10 (citing Mortgagees' Affidavit of Foreclosure Sale Under Power of Sale).]

Defendant further argues that the new non-judicial foreclosure procedures under Act 48 do not apply because Act 48 did not come into force until seven months after Plaintiffs' foreclosure, and there is no retrospective intention in the legislation. [Id. at 10-11.*fn5 ] Defendant finally asks the Court to follow California precedent, ruling that tender is a required element of a wrongful foreclosure claim. Defendant argues that Plaintiffs should have to allege that they made or could make a "valid and viable tender" of the amounts owed in order to pursue a wrongful foreclosure claim. [Id. at 11-12 (citing Williams v. Countrywide Home Loans, 1999 WL 740375, at *2 (N.D. Cal. Sept. 20, 1999); Benham v. Aurora Loan Servs., 2009 U.S. Dist. LEXIS 91287 (N.D. Cal. Oct. 1, 2009)).]

Defendant next argues that Plaintiffs' IIED claim fails because the Complaint does not allege outrageous conduct. [Id. at 13.] U.S. Bank holds the validly executed First Note and First Mortgage, which Plaintiffs defaulted on; Defendant therefore did not engage in outrageous conduct by proceeding with the foreclosure on behalf of U.S. Bank. [Id. at 13-14.]

Finally, Defendant argues that Plaintiffs have failed to state a claim for loss of consortium. Loss of consortium is a derivative claim, and all of Plaintiffs' underlying tort claims are without factual or legal basis. [Id. at 14 (citing Mist v. Westin Hotels, 69 Haw. 192, 197, 738 P.2d 85, 90 (1987)).]

Defendant therefore asks the Court to dismiss the First Amended Complaint in its entirety.

II. Plaintiffs' Memorandum in Opposition

In their Memorandum in Opposition, Plaintiffs argue that the First Amended Complaint contains the basic elements of the claims, and therefore it is sufficient to survive a Fed. R. Civ. P. 12(b)(6) motion to dismiss for failure to state a claim. They contend that the recent United States Supreme Court decisions do not invalidate the general rules that a plaintiff need only plead the basic elements of a claim, and a court considering a motion to dismiss must construe the allegations of fact in the light most favorable to the non-moving party. [Mem. in Opp. at 4 (some citations omitted) (citing Zimmerman v. City of Oakland, 255 F.3d 734, 737 (9th Cir. 2001); Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007); Beaudry v. TeleCheck Servs., Inc., 579 F.3d 702, 704 (6th Cir. 2009) (supporting the proposition that Iqbal and Twombly do not displace the rule of construing facts favorably towards the non-moving party)).] Plaintiffs further assert that dismissal without leave to amend is improper unless the complaint could not be saved by amendment. [Id. (citing Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir. 2009)).]

As to the fraud claim, Plaintiffs argue that Defendant falsely assured them that they would qualify for a loan modification when Defendant did not intend to give the modification and knew it would foreclose on the Property. Plaintiffs state that they relied on Defendant's assurance to their detriment, and Defendant was aware of Plaintiffs' reliance. [Id. at 5-6.]

As to the wrongful foreclosure claim, Plaintiffs argue that the Foreclosure Notice was deficient because Defendant told them to ignore the foreclosure notices they received because of the pending loan modification process. [Id. at 6-7.] The Court, however, notes that the First Amended Complaint does ...

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