Nazemi v. Specialized Loan Servicing, LLC
| Docket Number | Case No. 2:22-cv-05006-MCS-PVC |
| Decision Date | 31 October 2022 |
| Citation | 637 F.Supp.3d 856 |
| Parties | Patrick NAZEMI, Plaintiff, v. SPECIALIZED LOAN SERVICING, LLC et al., Defendants. |
| Court | U.S. District Court — Central District of California |
Ronald D. Tym, The Tym Firm, Agoura Hills, CA, for Plaintiff.
Andrew Jonathan Mase, Katherine K. Meleski, Ryan Firm APC, Irvine, CA, for Defendants Specialized Loan Servicing LLC, Computershare Holdings, Inc.
Defendants Specialized Loan Servicing, LLC and Computershare Holdings, Inc. move to dismiss the First Amended Complaint of Plaintiff Patrick Nazemi. (Mot., ECF No. 16.) Plaintiff opposes the motion, (Opp'n, ECF No. 17), and Defendants filed a reply, (Reply, ECF No. 18). The Court heard argument on October 24, 2022. (Mins., ECF No. 19.)
According to the First Amended Complaint, Plaintiff obtained two loans secured by his home. (FAC ¶¶ 10, 12, ECF No. 10.) Due to the economic crisis of 2008, Plaintiff became unable to pay the loan and ceased making payments. (Id. ¶ 11.) Beginning in February 2013, Defendants became the servicer of one of the two loans. (Id. ¶ 13.) In March 2014, the lender of the other loan foreclosed on Plaintiff's home. (Id. ¶ 12.) Immediately after the foreclosure sale, Defendants wrote off the loan as a loss for accounting purposes but did not file with the Internal Revenue Service ("IRS") the cancellation of debt Form 1099-C until early 2022. (Id. ¶¶ 14, 18-19.) Defendants reported the discharge of $2,549,296.21 in debt with $810,443.75 in interest. (Id. ¶ 20(c).) After receiving Defendants' Form 1099-C filing, the IRS attributed $1,738,853.46 of income to Plaintiff for the 2021 tax year. (Id. ¶ 22.) Due to a change in tax law taking effect in 2021, Plaintiff was only able to exclude up to $750,000 of the cancelled debt. (Id. ¶ 24.) Had Defendants filed the Form 1099-C for the 2014 tax year, Plaintiff would have been entitled to exclude up to $2,000,000 of cancelled debt. (Id.) This increased tax liability "caused Plaintiff serious physical harm in the form of exacerbation of a serious medical condition thereby accelerating cognitive decline, high levels of anxiety, sleeplessness, night sweats, depression, and stroke-like symptoms, as well as other physical ailments." (Id.) Accordingly, Plaintiff brings claims of intentional and negligent misrepresentation and fraudulent or unfair business practices under the California Unfair Competition Law ("UCL"). (See generally id. ¶¶ 9-39.)
Federal Rule of Civil Procedure 12(b)(6) allows an attack on the pleadings 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, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (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." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.
The determination of 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, 129 S.Ct. 1937. Generally, a court must accept the factual allegations in the pleadings as true and view them in the light most favorable to the plaintiff. Park v. Thompson, 851 F.3d 910, 918 (9th Cir. 2017); Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001). But a court is "not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Similarly, "conclusory allegations of law and unwarranted inferences are insufficient to avoid a Rule 12(b)(6) dismissal." Turner v. City & County of San Francisco, 788 F.3d 1206, 1210 (9th Cir. 2015) (internal quotation marks omitted).
Averments of fraudulent conduct are subject to the heightened pleading standard of Rule 9(b). Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1105 (9th Cir. 2003). To meet Rule 9(b), a plaintiff must "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). The complaint must identify the "who, what, when, where, and how" of the fraudulent misconduct, "as well as what is false or misleading about" it, and "why it is false." Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011) (internal quotation marks omitted).
Defendants argue that Plaintiff fails to plausibly allege any of his claims for relief. For the reasons set forth below, the Court agrees.
Plaintiff's misrepresentation claims both suffer the same defect. Plaintiff fails to state a claim for intentional or negligent misrepresentation because Defendants owed no duty to avoid causing Plaintiff's emotional injury.
Under California law, a claim of negligent misrepresentation requires a showing of: "(1) a misrepresentation of a past or existing material fact, (2) made without reasonable ground for believing it to be true, (3) made with the intent to induce another's reliance on the fact misrepresented, (4) justifiable reliance on the misrepresentation, and (5) resulting damage." Ragland v. U.S. Bank Nat'l Ass'n, 209 Cal. App. 4th 182, 196, 147 Cal.Rptr.3d 41 (2012). And to plead a claim of intentional misrepresentation under California law, a plaintiff must plead: "(1) a misrepresentation, (2) knowledge of falsity, (3) intent to induce reliance, (4) actual and justifiable reliance, and (5) resulting damage." Chapman v. Skype, Inc., 220 Cal. App. 4th 217, 230-31, 162 Cal.Rptr.3d 864 (2013). While duty is not an explicit element in either negligent or intentional misrepresentation, a defendant is liable to a third person injured as a result of the misrepresentation if the defendant owes that person a duty of care. See Randi W. v. Muroc Joint Unified Sch. Dist., 14 Cal. 4th 1066, 1076, 60 Cal.Rptr.2d 263, 929 P.2d 582 (1997); Murphy v. BDO Seidman, LLP, 113 Cal. App. 4th 687, 697, 6 Cal.Rptr.3d 770 (2003).
Normally, a plaintiff "must plead that he or she actually relied on the misrepresentation." Mirkin v. Wasserman, 5 Cal. 4th 1082, 1088, 23 Cal.Rptr.2d 101, 858 P.2d 568 (1993). However, California law imposes a duty of care to third parties where the misrepresentation "would present a substantial, foreseeable risk of physical injury" to a third party. Randi W., 14 Cal. 4th at 1081, 60 Cal.Rptr.2d 263, 929 P.2d 582. This exception does not apply where the plaintiff alleges "only economic losses." Gawara v. U.S. Brass Corp., 63 Cal. App. 4th 1341, 1354, 74 Cal.Rptr.2d 663 (1998). Rather, "actual physical harm must result." Friedman v. Merck & Co., 107 Cal. App. 4th 454, 477, 131 Cal.Rptr.2d 885 (2003).
Defendants argue that Randi W. does not apply here because Plaintiff's alleged physical injuries are disanalogous to Randi W. and its progeny. (Reply 3-6.) While Plaintiff asserts that the Randi W. standard applies, he fails to address the obvious factual distinctions between the instant case and Randi W., which involved allegations of a school administrator sexually abusing a student. 14 Cal. 4th at 1071, 60 Cal.Rptr.2d 263, 929 P.2d 582. Further, the Randi W. court specifically noted strong public policy considerations meriting the extension of a duty of care, including that "[o]ne of society's highest priorities is to protect children from sexual or physical abuse." Id. at 1078-79, 60 Cal.Rptr.2d 263, 929 P.2d 582. Plaintiff's First Amended Complaint does not present either analogous factual circumstances or strong policy considerations as in Randi W. Nonetheless, in erring on the side of caution, the Court assumes Randi W. applies.
Friedman v. Merck & Co. is instructive. There, the California Court of Appeal considered, inter alia, whether the plaintiff stated a claim for negligent misrepresentation. Friedman, 107 Cal. App. 4th at 475-87, 131 Cal.Rptr.2d 885. The plaintiff, a strict ethical vegan, alleged that the defendant misrepresented the chemical composition of a tuberculosis ("TB") test as "vegan safe" or "vegan friendly." Id. at 461, 131 Cal.Rptr.2d 885 (cleaned up). But after learning that the TB test involved injecting the plaintiff with a bovine serum, the plaintiff alleged serious emotional and subsequent physical injuries, "including but not limited to, injuries to his body, physical health, strength and activity and shock and injuries to his nervous system, and . . . severe physical and mental pain and anguish in connection therewith, all of which have caused and continue to cause [him] great mental, physical, spiritual, emotional and nervous pain and suffering." Id. at 461-62, 131 Cal.Rptr.2d 885 (alteration in original). Put simply, the plaintiff "was so upset he became physically ill." Id. at 480, 131 Cal.Rptr.2d 885. Finding that no physical injury "flowed directly from" or "was a direct result of" the misrepresentation, the Court of Appeal held that the plaintiff failed to state a cause of action for negligent misrepresentation. Id. at 480-81, 131 Cal.Rptr.2d 885. Similarly, Plaintiff here fails to plead any facts indicating a duty owed to him because "the gist of his claim is for emotional injury," not direct physical harm resulting from the false tax filing. Id. at 487, 131 Cal.Rptr.2d 885. Thus, as in Friedman, Plaintiff fails to allege intentional or negligent misrepresentation.1
The UCL prohibits "unlawful, unfair or fraudulent business act[s] or practice[s]." Cal. Bus. & Prof. Code § 17200. "Each of these three adjectives captures a...
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