Delgado v. Nationstar Mortg. LLC
| Decision Date | 21 May 2014 |
| Docket Number | Case No. 2:14-cv-02547-ODW(PJWx) |
| Court | U.S. District Court — Central District of California |
| Parties | ROBERTO DELGADO, Plaintiff, v. NATIONSTAR MORTGAGE LLC; DOES 1-10, inclusive, Defendants. |
After Defendant Nationstar Mortgage LLC did not approve him for a loan modification, Plaintiff Roberto Delgado filed this action, alleging violations of California's Homeowners' Bill of Rights ("HBOR") and Unfair Competition Law ("UCL"); negligence and negligent infliction of emotional distress; and breach of the implied covenant of good faith and fair dealing. After considering the parties' arguments, the Court finds that Delgado's HBOR, negligence, negligent-infliction-of-emotional-distress, and breach claims fail as a matter of California law. The Court also finds that he failed to adequately plead the other claims. The Court thus GRANTS Nationstar's Motion with partial leave to amend.1 (ECF No. 6.)
Delgado owns the residence located at 410 West Elm Street, Compton, California 90220 (the "Property"). (Compl. ¶ 1; RJN Ex. 1.) On February 23, 2007, Delgado borrowed $312,000.00 from Homefield Financial, Inc. and executed a deed of trust for the benefit of Mortgage Electronic Registration Systems, Inc ("MERS"). (RJN Ex. 1.) Delgado subsequently fell behind on the note by $5,261.08, and Cal-Western Reconveyance Corporation—the note's last trustee—recorded a Notice of Default on October 13, 2009. (Id. Ex. 2.) On April 21, 2010, Cal-Western Reconveyance recorded a Notice of Trustee's Sale. (Id. ¶ 4.) In July 2010, MERS assigned the Deed of Trust to Aurora Loan Services LLC. (Id. Ex. 5.)
On May 24, 2010, Delgado initiated voluntary Chapter 13 bankruptcy proceedings in the Central District of California. In re Roberto Delgado, No. 2:10-bk-30861-VZ (Bankr. C.D. Cal. pet. filed May 24, 2010); (RJN Ex. 6.) On November 17, 2010, the bankruptcy court confirmed Delgado's Chapter 13 plan. (RJN Ex. 8.) Aurora Loan Services has since transferred its bankruptcy claim to Nationstar. (Id. Ex. 9.) The petition is still pending.
On August 31, 2012, Cal-Western Reconveyance recorded a Notice of Rescission of the Notice of Default and Election to Sell Under Deed of Trust. (Id. Ex. 10.)
In 2013, Delgado began negotiating for a loan modification with Nationstar due to financial hardship stemming from reduction in his income. (Compl. ¶ 10.) Delgado alleges that after he submitted a completed application according to Nationstar's instructions, the lender never returned his telephone calls or followed up with him. (Id. ¶¶ 12-13.) Eventually, Nationstar informed Delgado that they had denied his application for lack of documents.2 (Id. ¶ 13.)
On February 26, 2014, Delgado filed suit against Nationstar in Los Angeles County Superior Court, alleging claims for violations of the HBOR, and UCL, Cal. Bus. & Prof. Code § 17200; breach of the implied covenant of good faith and fair dealing; negligence; and negligent infliction of emotional distress. Defendant subsequently removed the action to this Court under diversity jurisdiction. (ECF No. 1.)
Nationstar moved to dismiss Delgado's Complaint under Federal Rule of Civil Procedure 12(b)(6). (ECF No. 6.) Delgado timely opposed. (ECF No. 11.) That Motion is now before the Court for decision.
A court may dismiss a complaint under Rule 12(b)(6) for lack of a cognizable legal theory or insufficient facts pleaded to support an otherwise cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). To survive a dismissal motion, a complaint need only satisfy the minimal notice pleading requirements of Rule 8(a)(2)—a short and plain statement of the claim. Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). The factual "allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). That is, the 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, 678 (2009).
The determination whether a complaint satisfies the plausibility standard is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679. A court is generally limited to the pleadings and must construe all "factual allegations set forth in the complaint . . . astrue and . . . in the light most favorable" to the plaintiff. Lee v. City of L.A., 250 F.3d 668, 688 (9th Cir. 2001). But a court need not blindly accept conclusory allegations, unwarranted deductions of fact, and unreasonable inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
As a general rule, a court should freely give leave to amend a complaint that has been dismissed. Fed. R. Civ. P. 15(a). But a court may deny leave to amend when "the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency." Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir.1986); see Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000).
The Court finds that Delgado's claims under the HBOR and for negligence, negligent infliction of emotional distress, and breach of the implied covenant of good faith and fair dealing fail as a matter of California law. The Court dismisses the remaining claims as inadequately pleaded and grants leave to amend.
Delgado's first claim against Nationstar is for alleged breach of California's newly enacted HBOR. The HBOR now prohibits several nefarious mortgage practices that ensued after the 2008 housing-market collapse, including, among others, "dual tracking" and failing to communicate with the borrower during modification discussions and foreclosure. Cal. Civ. Code §§ 2923.7, 2924.18(a).
Nationstar contends that the HBOR does not apply to Delgado, because he is not a "borrower" as defined by the act. Delgado wholly fails to address this point in his Opposition.
The HBOR excludes from the definition of a borrower an "individual who has filed a case under Chapter 7, 11, 12, or 13 of Title 11 of the United States Code and the bankruptcy court has not entered an order closing or dismissing the bankruptcy case, or granting relief from a stay of foreclosure." Cal. Civ. Code § 2920.5(c)(2)(C).Delgado filed a voluntary Chapter 13 bankruptcy petition on May 24, 2010. (RJN Ex. 6.) The petition is still pending. Delgado therefore does not qualify as a "borrower" under the HBOR. The Court therefore GRANTS Nationstar's Motion on this ground WITHOUT LEAVE TO AMEND.
Delgado also brings a claim for breach of the implied covenant of good faith and fair dealing. California law implies in every contract a covenant of good faith and fair dealing. Jenkins v. JP Morgan Chase Bank, N.A. , 216 Cal. App. 4th 497, 524 (2013). The implied covenant "prevents the contracting parties from taking actions that will deprive another party of the benefits of the agreement." Id. The purpose and express terms of the contract limit the implied duty, and a party may not use the covenant to create additional rights not contemplated by the contract's term. Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 4th 342, 373 (1992).
But the existence of a contract is the sine qua non of the existence of the covenant. Fireman's Fund Ins. Co. v. Md. Cas. Co., 21 Cal. App. 4th 1586, 1599 (1994). That is, absent a valid, existing contract, there is no implied covenant of good faith and fair dealing and no obligation that the parties negotiate fairly. McClain v. Octagon Plaza, LLC, 159 Cal. App. 4th 784, 799 (2008); Racine & Laramie, Ltd. v. Dep't of Parks & Recreation, 11 Cal. App. 4th 1026, 1032 (1992).
Nationstar argues that Delagado cannot state an actionable breach of the implied covenant, because he may not use the implied promise to expand his contractual rights beyond those expressed in the underlying deed of trust. Nationstar points out that there is no right to a loan modification under California law. In response, Delagdo contends that "Defendant failed to honor the spirit of the agreement in place for a mortgage loan and repayment." (Opp'n 7.)
The Court finds that Delgado's implied-covenant claim fails as a matter of California law. Not only has Delgado failed to adequately plead what existing contractual right Nationstar allegedly breached via the implied covenant, but as amatter of logic he could not plead such a right. A loan modification creates a new agreement, as the parties change the terms of the existing deed of trust and promise to perform different obligations. It is axiomatic that California law does not imply any duty of good faith and fair dealing in an agreement not yet in existence. Fireman's Fund Ins., 21 Cal. App. 4th at 1599. In fact, the newly minted HBOR specifically provides that "[n]othing in the act that added [section 2923.4 dealing with loan modifications], however, shall be interpreted to require a particular result of that process." Cal. Civ. Code § 2923.4(a).
Delgado alleges that "Defendant breached the covenant of good faith and fair dealing implicit within the loan contract" (Compl. ¶ 27), and that "Defendant unfairly denied Plaintiff a loan modification and thus interfered with his right to receive the benefits bargained for under the loan contract." (Id. ¶ 33.) Noticeably absent are any references to specific contractual provisions that allegedly grant this loan-modification "right." See Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal. App. 4th 497, 525 (2013) ().
Absent an explicit contractual provision...
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