In re Wells Fargo Forbearance Litig.

Docket Number20-cv-06009-JD
Decision Date02 May 2023
CourtU.S. District Court — Northern District of California

This action consolidated several related cases alleging that defendants Wells Fargo Bank, N.A. and Wells Fargo &amp Company (together, Wells Fargo) put residential mortgage holders into forbearance without their knowledge or consent during the COVID-19 pandemic. See Dkt. No. 152 (consolidation order). Plaintiffs filed a third amended complaint (TAC), Dkt. No. 162, which runs for over 110 pages and alleges 14 claims ranging from the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 the Truth in Lending Act (TILA), 15 U.S.C. § 1601, the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C § 2601, and the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681, to a variety of state statutory and common law claims. See Dkt. No. 162 ¶¶ 413-587. The named plaintiffs seek to represent a nationwide class and six state classes of Wells Fargo customers. Id. ¶¶ 398-404.

Although plaintiffs are on a third amended complaint, this is the first occasion on which the Court has been asked to determine the plausibility of the claims under Federal Rule of Civil Procedure 12(b)(6). Motions to dismiss prior iterations of the complaint were terminated or withdrawn without decision after consolidation and other events. See Dkt. Nos 61, 87, 122, 152. Wells Fargo asks to dismiss 11 of the 14 claims in the TAC. See Dkt. No. 172. The parties' familiarity with the record is assumed, and dismissal is granted and denied in part, with leave to amend.


The Court has discussed in other cases the standards governing a Rule 12(b)(6) motion to dismiss, and the discussion is incorporated here. See McLellan v. Fitbit, Inc., No. 3:16-cv-00036-JD, 2018 WL 2688781, at *1 (N.D. Cal. June 5, 2018). In pertinent part, Rule 8(a)(2) of the Federal Rules of Civil Procedure requires that a complaint make “a short and plain statement of the claim showing that the pleader is entitled to relief.” To meet that rule and survive a Rule 12(b)(6) motion to dismiss, a plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). Determining whether a complaint states a plausible claim for relief is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679.

Because some of plaintiffs' claims sound in fraud, Rule 9(b) also applies. Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009). Rule 9(b) requires that “a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). A “pleading must identify the who, what, when, where, and how of the misconduct charged, as well as what is false or misleading about the purportedly fraudulent statement, and why it is false.” United States ex rel. Anita Silingo v. WellPoint, Inc., 904 F.3d 667, 677 (9th Cir. 2018) (internal quotation and citation omitted). Conclusory allegations with no “particularized supporting detail” are not sufficient. United States v. United Healthcare Ins. Co., 848 F.3d 1161, 1180 (9th Cir. 2016).


The RICO claim is dismissed with leave to amend. RICO may reach beyond its roots in organized crime, and may be alleged in non-criminal contexts for (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985) (citing 18 U.S.C. § 1962(c)). “The plaintiff must, of course, allege each of these elements to state a claim,” and the Supreme Court has emphasized that simply [c]onducting an enterprise that affects interstate commerce is obviously not in itself a violation of § 1962, nor is mere commission of the predicate offenses.” Id. “In addition, the plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation.” Id.; see also United Bhd. of Carpenters & Joiners of Am. v. Bldg. & Const. Trades Dep't, AFL-CIO, 770 F.3d 834, 837 (9th Cir. 2014) (elements of a civil RICO claim). Although a RICO allegation requires no more than these elements, and the statute “is to be ‘liberally construed to effectuate its remedial purposes,' Sedima, 473 U.S. at 498 (citation omitted), a plausible civil RICO claim must satisfy the heightened pleading standards of Rule 9(b) and a variety of specific pleading requirements under the statute with respect to the alleged enterprise, predicate acts, injury, and causation. See 18 U.S.C. § 1962; Edwards v. Marin Park, Inc., 356 F.3d 1058, 1065-66 (9th Cir. 2004).

The TAC provides an abundance of allegations with respect to the conduct and pattern, but falls short on plausibly alleging a racketeering enterprise. An enterprise for purposes of RICO may consist of “any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). An associated-in-fact enterprise is “a group of persons associated together for a common purpose of engaging in a course of conduct,” and requires “evidence of an ongoing organization, formal or informal” and “evidence that the various associates function as a continuing unit.” Odom v. Microsoft Corp., 486 F.3d 541, 552-53 (9th Cir. 2007) (en banc) (internal quotations omitted). An associated-in-fact enterprise “must have at least three structural features: a purpose, relationships among those associated with the enterprise, and longevity sufficient to permit these associates to pursue the enterprise's purpose.” Boyle v. U.S., 556 U.S. 938, 946 (2009).

The enterprise must also be an entity distinct from the defendant, and “not simply the same ‘person' referred to by a different name.” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 161 (2001). This means plaintiffs must allege facts demonstrating that the enterprise “is ‘a being different from, not the same as or part of, the person whose behavior [RICO] was designed to prohibit,' and is “either formally or practically separable from the person.” Living Designs, Inc. v. E.I. Dupont de Nemours & Co., 431 F.3d 353, 362 (9th Cir. 2005) (citation omitted). RICO liability ‘depends on showing that the defendants conducted or participated in the conduct of the enterprise's affairs, not just their own affairs.' Cedric Kushner Promotions, 533 U.S. at 163 (quoting Reves v. Ernst & Young, 507 U.S. 170, 185 (1993)) (emphasis in original).

The TAC does not plausibly allege an enterprise distinct from Wells Fargo acting in its own business capacity. Plaintiffs say that Wells Fargo, Black Knight Inc. (a “mortgage loan servicing and borrower communication application”), and unidentified third-party vendors operated as an associated-in-fact enterprise with “the common purpose of maximizing their profits by placing borrowers into CARES Act forbearances.” Dkt. No. 162 ¶¶ 166-67, 421-24. But the role of the unnamed vendors is opaque as to their identity, and the alleged conduct of Black Knight is consistent with legitimate business endeavors. Black Knight is said to have “capitalized on the COVID-19 crisis by marketing its MSP platform, distributing a white paper advertising its products as assisting mortgage servicers in establishing forbearance, allowing mortgage servicers to automate the management of forbearance programs,” id. ¶ 168, and to have generated revenue by helping Wells Fargo identify “loans to be placed into forbearance through its automated mortgage servicing program,” id. ¶ 169. Wells Fargo also allegedly used Black Knight's services “to identify borrowers who can be placed into deferment post-forbearance,” “to convey COVID for bearance specific false credit reporting to credit reporting agencies, to process loan modifications, and to effectuate early pool buyouts.” Id. ¶ 424.

Accepting all of this as true for present purposes, these allegations do not plausibly establish that Black Knight was part of a RICO enterprise with Wells Fargo. Allegations of “a run-of-the-mill commercial relationship where each entity acts in its individual capacity to pursue its individual self-interest” are not enough to establish an enterprise. Bible v. United Student Aid Funds, Inc., 799 F.3d 644, 655-56 (7th Cir. 2015); see also River City Mkts., Inc. v. Fleming Foods West, Inc., 960 F.2d 1458, 1463 (9th Cir. 1992) (evidence of “a routine business arrangement” was insufficient to establish an enterprise); United Food & Com. Workers Unions & Emps. Midwest Health Benefits Fund v. Walgreen Co., 719 F.3d 849, 854-55 (7th Cir. 2013) (affirming dismissal of RICO claim where allegations showed “only that the defendants had a commercial relationship, not that they had joined together to create a distinct entity for purposes of improperly filling ranitidine and fluoxetine prescriptions”); Crichton v. Golden Rule Ins. Co., 576 F.3d 392, 400 (7th Cir. 2009) (allegations of a “garden-variety marketing arrangement” were “insufficient to state a RICO claim based on an association-in-fact enterprise”).

The allegations in the TAC establish only that Black Knight engaged in garden-variety business activities pursuant to a contract with Wells Fargo. That will not do to plausibly allege a RICO enterprise. [S]omething more” is needed for the requisite common purpose and distinct enterprise, namely facts...

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