The opinion of the court was delivered by: J. Michael Seabright United States District Judge
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS BANK OF NEW
YORK'S, BANK OF AMERICA, N.A.'S, AND BAC HOME LOANS SERVICING LP'S MOTION TO
DISMISS SECOND AMENDED COMPLAINT FILED ON OCTOBER 12, 2011
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS BANK OF NEW YORK'S, BANK OF AMERICA, N.A.'S, AND BAC HOME LOANS SERVICING LP'S MOTION TO DISMISS SECOND AMENDED COMPLAINT FILED ON OCTOBER 12, 2011
On May 25, 2010, Plaintiff Perle Menashe ("Plaintiff") filed this action alleging various claims against Defendants Bank of New York, a New York banking corporation ("BONY"); Bank of America, NA, formerly known as Countrywide Bank FSB ("BANA"); and BAC Home Loans Servicing LP, formerly known as Countrywide Home Loan Servicing, Inc. ("BAC") (collectively, "Defendants") stemming from a mortgage transaction concerning real property located at 5105 Kapiolani Loop, Princeville, Hawaii 96722 (the "subject property").
Plaintiff filed her First Amended Complaint ("FAC") after Defendants filed a Motion for Judgment of the Pleadings on the Complaint, and Plaintiff filed her Second Amended Complaint ("SAC") after the court dismissed the federal claims and declined jurisdiction over the remaining state law claims.*fn1 See Menashe v. Bank of New York, 2011 WL 4527384, at *8-9 (D. Haw. Sept. 27, 2011). The SAC asserts a slew of claims for violations of the Real Estate Settlement Procedures Act of 1974 ("RESPA") and state law claims.
Currently before the court is Defendants' Motion to Dismiss, in which they argue that the SAC fails to state a cognizable claim. Based on the following, the court GRANTS in part and DENIES in part Defendants' Motion to Dismiss.
As alleged in the SAC, on or about June 14, 2007, Plaintiff entered into a loan repayment and security agreement in the amount of $600,000 with Countrywide Bank FSB ("Countrywide"), secured by the subject property. Doc. No. 60, SAC ¶¶ 3, 22. The loan terms provide for a five-year fixed-payment schedule of interest only (resulting in a negative amortization loan and a maximum principal balance of $690,000), followed by a payment rate that would be adjusted annually. Id. ¶ 23.
This loan transaction was a refinancing of Plaintiff's earlier mortgage (which carried a monthly payment of $1,764.81), and Countrywide convinced Plaintiff to refinance with Countrywide for a minimum payment of $2,217.72 per month. Id. ¶ 24. Countrywide did not disclose in any papers, however, that the payments may increase to $4,253.36 or even $6,171.68 per month. Id. ¶ 25. Countrywide also did not explain that it paid a yield spread premium of $1,500, and that refinancing would cause Plaintiff $18,121.42 in prepayment penalties with her previous mortgagee, IndyMac. Id. ¶ 27. Further, although Countrywide determined that an appraisal was unnecessary, the HUD statement lists that Integris was the appraiser for an $800 charge. Id. ¶ 34. According to the SAC, the terms of the transaction stripped, in total, over $70,000 of equity from the subject property due to costs, fees, and prepayment penalties, making Plaintiff's ability to refinance unlikely. Id. ¶ 28.
The SAC asserts that in making and offering this loan, Countrywide relied on stated income, assets, and liabilities, and failed to make a reasonable determination of whether Plaintiff could truly qualify and repay the loan. Id. ¶¶ 33, 35. Approved, the mortgage broker, also falsely inflated Plaintiff's income, and Countrywide based the loan on that inflated income and a credit check only. Id. ¶ 35. According to the SAC, if Countrywide used more accurate information, Plaintiff would not have qualified for the loan. Id. ¶ 36. Further, although Plaintiff was not approved for the full payment rate and could have qualified for more appropriate loans, Countrywide explained to Plaintiff that she would easily be able to refinance within the initial five-year term, omitting mention of the volatility of the loan product and the financial marketplace. Id. ¶¶ 26, 29-31. The SAC asserts that Countrywide breached its fiduciary duty to place Plaintiff into a loan that she could afford. Id. ¶¶ 32, 37. Indeed, since entering into the loan transaction, Plaintiff has had difficulty making her payments, and has begun to fall behind after filing this action such that she is facing imminent default and foreclosure. Id. ¶¶ 38-39.
In July 2008, Bank of America Corp. acquired Countrywide (and, apparently, the mortgage and note) and changed Countrywide's name to BANA. Id. ¶ 4. The loan was also apparently serviced by Countrywide Home Loan Servicing, LP ("CHLS") -- the SAC asserts that Bank of America Corp. acquired CHLS and changed its name to BAC. Id. According to the SAC, BANA and BAC were under a duty to inspect and examine the practices of the originators of the loan such that any violations of law and/or illegalities with the loan flow to BOA and BAC. Id. ¶ 49.
Plaintiff's mortgage provides that Mortgage Electronic Registration Systems, Inc. ("MERS") is the mortgagee, solely as nominee for Countrywide. Doc. No. 63-4, Defs.' Ex. B.*fn2 At some point in time, MERS allegedly assigned the loan to BONY as nominee on behalf of Countrywide and/or BANA. Doc. No. 60, SAC ¶ 51. According to the SAC, this assignment is illegal because "[t]he actual owner of the note has not executed the Assignment to the new party" and "[a]n assignment of a mortgage in the absence of the assignment and physical delivery of the note will result in a nullity." Id. ¶ 52. The SAC further asserts that the use of MERS is "intentionally designed to mislead the borrower and benefit the lenders," and "MERS has no right to assign a power of sale to foreclose upon the subject property to a successor" such that Defendants have no legal standing to foreclose against Plaintiff. Id. ¶¶ 54-55.
The SAC asserts that the mortgage was securitized and as a result, BONY does not own the mortgage note and is only a trustee, and BAC is only the servicer for the mortgage pool. Id. ¶¶ 56-58. According to the SAC, this securitization renders the mortgage unenforceable. Id. ¶¶ 59-60.
Finally, as to Defendants' alleged RESPA violations, the SAC asserts that on December 21, 2009, Plaintiff, through her attorney, mailed to BANA a qualified written request ("QWR") requesting "specific servicing related information." Id. ¶ 40. The December 21, 2009 letter, attached to the SAC as Exhibit 1, requests "a 'certified' copy of the original promissory note that was signed," and "a copy of the appraisal taken at the time of the loan." Doc. No. 60-1, SAC Ex. 1. On December 31, 2009, BANA requested written authorization from Plaintiff, which Plaintiff returned on January 22, 2010. Doc. No. 60, SAC ¶ 41. On March 18, 2010, Plaintiff renewed her request for the information sought in the December 21, 2009 letter, and additionally requested (1) nineteen categories of documents concerning the mortgage transaction, servicing of the mortgage, sales and/or assignments of the mortgage, and correspondence to Plaintiff, and
(2) that BANA answer eleven different questions seeking information on, among other things, the names of the holder(s) of the note and mortgage, the location of the note and mortgage, calculations and rates on the mortgage, and any pooling arrangements of the mortgage loan. Doc. No. 60-2, SAC Ex. 2.
BANA responded in an April 6, 2010 letter by providing a summary of the loan, yet declined all other requests as going "beyond that which is available through a [QWR] made under 12 U.S.C. § 2605(B)." Doc. No. 60-3, SAC Ex. 3. BANA further explained that "Countrywide/Bank of America did not originate the subject loan . . . [and] is not responsible for any misunderstanding or lack of communication between the borrower and originating entity." Id. BANA also explained that "a credit block was placed while the issues in your letter were addressed," and that "we will not remove the negative credit reporting from our customer's credit file." Id. According to the SAC, BANA has yet to provide a complete response to Plaintiff's QWRs, causing Plaintiff damages. Id. ¶¶ 46-47.
On May 25, 2010, Plaintiff filed this action against Defendants and Approved. After BAC and BONY filed a Motion for Judgment on the Pleadings, Plaintiff filed the FAC on November 22, 2010. Defendants subsequently filed a Motion to Dismiss the FAC, and on September 27, 2011, the court dismissed Plaintiff's federal claims with leave for Plaintiff to amend. The September 27, 2011 Order further declined jurisdiction over Plaintiff's remaining state law claims until Plaintiff stated a claim based on federal law (both Plaintiff and Approved are citizens of Hawaii).
On October 11, 2011, Plaintiff filed her SAC, asserting claims against only BONY, BANA, and BAC (Plaintiff declined to continue alleging claims against Approved). The SAC asserts sixteen claims titled: (1) Violation of RESPA (Against BANA) (Count I); (2) Respondeat Superior Liability (Against BANA, BAC and BONY) (Count II); (3) Negligent or Wanton Hiring, Training or Retention (Against BANA, BAC and BONY) (Count III); (4) Negligent Misrepresentation (Against BANA, BAC, and Countrywide) (Count IV); (5) Civil Conspiracy (Against All Defendants) (Count V); (6) Breach of Contract (Against Countrywide, BANA, and BAC) (Count VI); (7) Breach of Fiduciary Duty (Against BANA, BAC, and Countrywide) (Count VII); (8) Common Law Fraud - Concealment (Against BANA, BAC, and Countrywide) (Count VIII); (9) Common Law Fraud - Inducement (Against BANA, BAC, and Countrywide) (Count IX); (10) Unfair and Deceptive Acts and Practices - Hawaii Revised Statutes ("HRS") § 480-2 (Against Countrywide, BAC, BANA, and BONY) (Count X); (11) Improper Restrictions as a Result of Securitization (Against All Defendants) (Count XI); (12) Wrongful Conversion of Note (Against All Defendants) (Count XII); (13) The Note and Mortgage Are Unenforceable Because the Mortgagor Never Consented to the Securitization (Against All Defendants) (Count XIII); (14) The Restrictions Imposed Upon the Modification of the Mortgage are a Clog Upon the Equity of Redemption (Against Defendants Claiming Any Interest in the Subject Property) (Count XIV); (15) Quiet Title (Against Defendants Claiming Any Interest in the Subject Property) (Count XV); and (16) The Unenforceability of the Note and Mortgage Requires the Court to Declare a Constructive Trust or Mortgage Trust (Against Defendants Claiming Any Interest in the Subject Property) (Count XVI).
On October 28, 2011, Defendants filed their Motion to Dismiss the SAC.
On January 9, 2012, Plaintiff filed her Opposition,*fn3
and Defendants filed a
Reply on January 17, 2012. A hearing was held on January 30, 2012.
Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss a claim for "failure to state a claim upon which relief can be granted[.]"
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, ___, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Weber v. Dep't of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir. 2008). This tenet -- that the court must accept as true all of the allegations contained in the complaint -- "is inapplicable to legal conclusions." Iqbal, 129 S. Ct. at 1949. Accordingly, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Twombly, 550 U.S.at 555); see also Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011) ("[A]llegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.").
Rather, "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S.at 556). In other words, "the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation." Starr, 652 F.3d at 1216. Factual allegations that only permit the court to infer "the mere possibility of misconduct" do not show that the pleader is entitled to relief as required by Rule 8. Iqbal, 129 S. Ct. at 1950.
B. Federal Rule of Civil Procedure 9(b)
Federal Rule of Civil Procedure 9(b) requires that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." "Rule 9(b) requires particularized allegations of the circumstances constituting fraud." In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547-48 (9th Cir. 1994) (en banc) (emphasis in original), superseded on other grounds by 15 U.S.C. § 78u-4.
In their pleadings, Plaintiffs must include the time, place, and nature of the alleged fraud; "mere conclusory allegations of fraud are insufficient" to satisfy this requirement. Id. (citation and quotation signals omitted). Where there are multiple defendants, Plaintiffs cannot "lump multiple defendants together" and instead must "differentiate their allegations [between defendants]." Destfino v. Kennedy, 630 F.3d 952, 958 (9th Cir. 2011) (citation omitted). However, "[m]alice, intent, knowledge, and other condition of mind of a person may be averred generally." Fed. R. Civ. P. 9(b); see also In re GlenFed, Inc. Sec. Litig, 42 F.3d at 1547 ("We conclude that plaintiffs may aver scienter . . . simply by saying that scienter existed."); Walling v. Beverly Enter., 476 F.2d 393, 397 (9th Cir. 1973) (Rule 9(b) "only requires the identification of the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations." (citations omitted)).
A motion to dismiss for failure to plead with particularity is the functional equivalent of a motion to dismiss under Fed. R. Civ. P. 12(b)(6). Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003). In considering a motion to dismiss, the court is not deciding the issue of "whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support claims." Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982).
Over the last three years, this court has been flooded with numerous actions brought by mortgagors trying to stave off foreclosure. As a result, this court has entered numerous orders outlining the pleading requirements for the various claims the court sees time and again. Plaintiff's counsel is apparently aware of several of these orders -- Plaintiff argues that the SAC is similar to other cases that have survived motions to dismiss (without providing any substantive comparison),*fn4 and attempts to distinguish orders dismissing with prejudice the same claims that Plaintiff alleges in this action. Given Plaintiff's awareness of the jurisprudence in this district, the court is at a loss as to why Plaintiff took a kitchen-sink approach to asserting claims against Defendants. The court nonetheless proceeds to wade through each of Plaintiff's claims.
A. Violation of RESPA (Count I)
In support of Plaintiff's RESPA claim, the SAC asserts that BANA violated (1) 12 U.S.C. § 2605(e)(2) by failing and refusing to provide a written response to Plaintiff's QWRs; (2) 12 U.S.C. § 2605(e)(2) by refusing to cease collection efforts after receiving Plaintiff's QWR; and (3) 12 U.S.C. § 2605(e)(3) by "providing information to consumer reporting agencies regarding overdue payments allegedly owned by Plaintiff that were related to her QWR." Doc. No. 60, SAC ¶¶ 68-70. Defendants argue that these conclusory allegations fail to state a claim and in any event, Plaintiff has failed to allege damages. The court addresses each of these arguments.
1. Failure to Provide a Complete Response to a QWR
As the court already explained in this action once, see Menashe, 2011 WL 4527384, at *8-9, RESPA provides that "[i]f any servicer of a federally related mortgage loan receives a [QWR] from the borrower (or an agent of the borrower) for information relating to the servicing of such loan, the servicer shall provide a written response acknowledging receipt of the correspondence within 20 days[.]"
12 U.S.C. § 2605(e)(1)(A). A QWR is defined as: a written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, that: (i) includes, or otherwise enables the servicer to identify, the name and account of the borrower; and (ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.
12 U.S.C. § 2605(e)(1)(B). "Servicing" is defined as: receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts described in section 2609 of this title, and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.
After receiving the QWR, within sixty days, the loan servicer must, if the servicer determines an error in the account, make appropriate corrections to the borrower's account and notify the borrower of the correction in writing. 12 U.S.C. § 2605(e)(2) (A). If the servicer determines that the account is not in error, the servicer must provide the borrower with a written explanation or clarification stating the reasons why the servicer believes the borrower's account is correct. Id. § 2605(e)(2)(B). If the request pertains to a request for information, the servicer must either provide the information to the borrower or explain why such information is unavailable. Id. § 2605(e)(2)(C).
Defendants argue that BANA did not violate § 2605(e)(2) because Plaintiff's letters do not qualify as QWRs, and in any event, BANA properly responded to the letters. As to Defendants' first argument, the court certainly understands how they came to the conclusion that Plaintiff's letters do not qualify as QWRs-- requests seeking information on the validity of the loan and mortgage documents (such as documents relating to the original loan transaction and its subsequent history) simply "do not fall within the confines of RESPA." Junod v. Dream House Mortg. Co., 2012 WL 94355, at *3 (C.D. Cal. Jan. 5, 2012) (citing Consumer Solutions REO, LLC v. Hillery, 658 F. Supp. 2d 1002, 1014 (N.D. Cal. 2009) (dismissing RESPA claim with prejudice after observing that the requirement "[t]hat a QWR must address the servicing of the loan, and not its validity, is borne out by the fact that § 2605(e) expressly imposes a duty upon the loan servicer, and not the owner of the loan")); MorEquity, Inc. v. Naeem, 118 F. Supp. 2d 885, 901 (N.D. Ill. 2000) (dismissing a RESPA claim because "[a]ccording to the allegations . . . , the letter sought information about the validity of the loan and mortgage documents, but made no inquiry as to the status of the [ ] account balance"); see also Thurman v. Barclays Capital Real Estate Corp.,2011 WL 846441, at *4 (E.D. Cal. Mar. 7, 2011) ("A QWR must seek information relating to the servicing of the loan; a request for loan origination documents is not a QWR."); Jones v. PNC Bank, N.A., 2010 WL 3325615, at *2 (N.D. Cal. Aug. 20, 2010) ("A QWR must seek information relating to the servicing of the loan; a request for loan origination documents is not a QWR.").
Plaintiff's December 21, 2009 letter requested "a 'certified' copy of the original promissory note that was signed," and "a copy of the appraisal taken at the time of the loan." Doc. No. 60-1, SAC Ex. 1. Because the information sought was directed to loan origination and not the servicing of the loan, the December 21, 2009 letter does not qualify as a QWR under RESPA. The court therefore ...