Bias v. Wells Fargo & Co., Case No. 12–cv–00664–YGR.

CourtUnited States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
Citation942 F.Supp.2d 915
Decision Date25 April 2013
Docket NumberCase No. 12–cv–00664–YGR.
PartiesLatara BIAS, Eric Breaux, and Nan White–Price, individually and on behalf of other members of the general public similarly situated, Plaintiffs, v. WELLS FARGO & COMPANY and Wells Fargo Bank, N.A., Defendants.

942 F.Supp.2d 915

Latara BIAS, Eric Breaux, and Nan White–Price, individually and on behalf of other members of the general public similarly situated, Plaintiffs,
v.
WELLS FARGO & COMPANY and Wells Fargo Bank, N.A., Defendants.

Case No. 12–cv–00664–YGR.

United States District Court,
N.D. California.

April 25, 2013.


[942 F.Supp.2d 923]


Daniel Alberstone, Mark Philip Pifko, Roland K. Tellis, Baron & Budd, P.C., Los Angeles, CA, for Plaintiffs.

Mark Douglas Lonergan, Michael Jan Steiner, Michelle Therese McGuinness, Rebecca Snavely Saelao, Severson & Werson A Professional Corporation, San Francisco, CA, for Defendants.


Order Denying Defendants' Motion to Dismiss

YVONNE GONZALEZ ROGERS, District Judge.

Plaintiffs initiated this class action on February 10, 2012 concerning fraudulent practices in connection with the servicing of their home mortgage loans. (Dkt. No. 1.) After a previous round of motions, the Court ordered that claims against each of the three groups of defendants be severed into three separate actions. (Dkt. No. 59.) Thereafter, Named Plaintiffs Latara Bias, Eric Breaux, and Nan White–Price filed the Second Amended Class Action Complaint (“SAC”) against Defendants Wells Fargo & Company and Wells Fargo Bank, N.A. (collectively, “Wells Fargo” or “Defendants”). (Dkt. No. 61.)

Wells Fargo filed a Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6) on August 7, 2012, seeking dismissal of the SAC without leave to amend. (Dkt. No. 66.) On August 21, 2012, Plaintiffs filed their Opposition to the Wells Fargo Defendants' Motion to Dismiss Pursuant to Fed.R.Civ.P. 12(b)(6). (Dkt. No. 67.) Wells Fargo filed their Reply Memorandum in Support of Motion to Dismiss on August 28, 2012. (Dkt. No. 68.) The Court held oral argument on November 6, 2012. (Dkt. No. 72.)

Having carefully considered the papers submitted and the pleadings in this action, oral argument at the hearing held on November 6, 2012, and for the reasons set forth below, the Court Denies Wells Fargo's Motion to Dismiss.

I. Factual and Procedural Background

Plaintiffs allege that Defendants have engaged and continue to engage in fraudulent practices in connection with their home mortgage loan services, in which Defendants assess fraudulent fees upon a homeowner's default.1 (SAC ¶¶ 1–2.) As part of a fraudulent scheme, Defendants “formed an enterprise with their respective subsidiaries, affiliates, and ‘property preservation’ vendors, ... unlawfully mark[ed] up default-related fees charged by third parties[,] and assess[ed] them against borrowers' accounts” for an undisclosed profit. ( Id. ¶ 8.) Specifically, “Defendants order[ed] default-related services from their subsidiaries and affiliated companies, who, in turn, obtain [ed] the services from third-party vendors.” ( Id. ¶ 40.) The third-party vendors charged Defendants for their services, but Defendants “assess[ed] borrowers a fee that [wa]s significantly marked-up from the third-party vendors' actual fees for the services.” ( Id.;see also id. ¶¶ 45, 54 & 57.)

[942 F.Supp.2d 924]

Plaintiffs allege their mortgage contracts disclosed that Defendants will pay for default-related services when necessary, which would be reimbursed by borrowers, but “[n]owhere [wa]s it disclosed to borrowers that the servicer may mark-up the actual cost of those services to make a profit.” (SAC ¶ 42.) Defendants identified the marked-up fees as “Other Charges” or “Other Fees” on mortgage statements. ( Id. ¶¶ 9, 48 & 57.) When borrowers inquired about the fees, Defendants allegedly concealed and misled the borrowers to dissuade them from challenging the charges, and told them that the fees were in accordance with their mortgages. ( Id. ¶ 57.)

The allegedly marked-up fees included Broker's Price Opinion fees (“BPOs”) and appraisal fees. (SAC ¶¶ 30 & 43–57.) With regard to BPOs, Plaintiffs allege that Defendants established an “inter-company division or d/b/a” called Premiere Asset Services (“Premiere”), which participated as a member of the enterprise and existed to generate revenue and undisclosed profits for Defendants. ( Id. ¶¶ 48–52.) Although affiliated with Wells Fargo, Premiere advertised to “make it appear as though [it] [wa]s an independent company” providing BPOs. ( Id. ¶ 51.) However, Plaintiffs allege Premiere was created to act as a “phony third party vendor” such that it would appear to borrowers that amounts assessed on accounts were third-party costs. ( Id. ¶ 56.) Premiere sub-contracted BPOs to different local real estate brokers and, at Defendants' direction, invoiced Wells Fargo Bank, N.A. “as if [it] was an independent, third-party vendor.” ( Id. ¶ 52.) Plaintiffs allege that Defendants “never actually pa[id]” the invoices or Premiere for the BPOs, but paid a lesser amount directly to the local real estate brokers and assessed borrowers' accounts for a marked-up amount on the manufactured “invoices.” ( Id. ¶¶ 53–57.)

Plaintiffs also allege that Defendants used a sophisticated home loan management program provided by Fidelity National Information System, Inc. called Mortgage Servicing Package (the “Program”). (SAC ¶ 36.) The Program “automatically implement[ed] decisions about how to manage borrowers' accounts based on internal software logic” and imposed the default-related fees when a loan was past due. ( Id. ¶ 37.) The parameters and guidelines for the Program were inputted by Defendants and “designed by the executives” at Wells Fargo. ( Id. ¶¶ 35–38.)

As stated supra, Wells Fargo serviced Plaintiffs' mortgages. (SAC ¶¶ 64 & 66.) As to Plaintiffs Bias and Breaux, Wells Fargo began assessing $95 BPOs on December 28, 2006. ( Id. ¶ 65 (also assessing on September 27, 2007 and March 28, 2008).) Bias and Breaux allege they paid some or all of the unlawful fees assessed on their account. ( Id.) Plaintiff White–Price was assessed $100 in “Other Charges” on September 19, 2011, and believes she paid some or all of the unlawful fees assessed on her account. ( Id. ¶ 67.) In addition, borrowers have suffered additional harm resulting from: (i) charges for default-related services accumulated over time such that borrowers were driven further into default and/or more ensured to stay in default; (ii) damage to credit scores; (iii) the inability to obtain favorable interest rates on future loans because of their default; and (iv) in some cases, foreclosure. ( Id. ¶¶ 59–63.)

On the basis of the allegations summarized above, Plaintiffs bring this action on behalf of a class of “[a]ll residents of the United States of America who had a loan serviced by Wells Fargo Bank, N.A. or its subsidiaries or divisions, and whose accounts were assessed fees for default-related services, including Broker's Price Opinions, and inspection fees, at any time, continuing through the date of final disposition

[942 F.Supp.2d 925]

of this action.” (SAC ¶ 74.) The SAC alleges five claims.

Plaintiffs' first claim alleges a violation of California Business and Professions Code section 17200, et seq. (“UCL” or “Section 17200”) based on the allegedly unlawful, unfair, and fraudulent business practices summarized above. (SAC ¶¶ 88–100.) Specifically, Defendants omitted a true itemization or description of the fees assessed and concealed the marked-up fees in violation of the disclosures in the mortgage agreements. Defendants were not legally authorized to collect these fees, and Plaintiffs/class members believed they were obligated to pay the amounts assessed when they were not so obligated. Plaintiffs/class members had a reasonable expectation that under the operative agreements and law, the charges were valid and Defendants were not unlawfully marking-up fees. In addition, Defendants lulled borrowers into a sense of trust and dissuaded them from challenging the unlawful fees by telling them the fees were in accordance with the mortgage agreements. Plaintiffs allege they have been injured and suffered loss of money or property, and that they would not have paid the fees (or would have challenged them) if not for Defendants' concealment of material facts.

Plaintiffs' second claim alleges a violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. section 1962(c). (SAC ¶¶ 101–123.) The alleged “enterprise” consisted of: (i) Wells Fargo & Company, Wells Fargo Bank, N.A., including their directors, employees, and agents; (ii) their subsidiaries and affiliated companies; and (iii) their third-party vendors, including “property preservation” vendors 2 and the real estate brokers who provide BPOs. (SAC ¶ 104.) This “association-in-fact” enterprise is an “ongoing, continuing group ... of persons and entities associated together for the common purpose of limiting costs and maximizing profits by fraudulently concealing assessments for unlawfully marked-up fees for default-related services on borrowers' accounts.” ( Id. ¶ 105; see id. ¶¶ 3, 8, 46, 49, 104–108.) The members—while “systematic[ally] link[ed]” through contractual and financial ties—act according to policies established by Wells Fargo executives but also “have an existence separate and distinct from the enterprise.” ( Id. ¶¶ 106–107.) Plaintiffs allege that Defendants' scheme constituted “racketeering activity” based on acts of mail and wire fraud ( 18 U.S.C. sections 1341 and 1343), by which Defendants communicated false information regarding the alleged fees due and omitted the true amounts at issue through use of the mail and wires. Plaintiffs seek treble damages under RICO.

Plaintiffs' third claim alleges a conspiracy to violate RICO. (SAC ¶¶ 124–128.) Defendants allegedly conspired to violate RICO as summarized above, were aware of the nature and scope of the enterprise's unlawful scheme, and agreed to participate in said scheme. Plaintiffs' fourth claim alleges unjust enrichment as a result of the wrongful acts and omissions of material fact. ( Id. ¶¶ 129–138.) Plaintiffs seek restitution and an order disgorging all profits obtained by Defendants....

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