Vargas v. Wells Fargo Bank, N.A.

• Decision Date: 18 July 2012
• Docket Number: No. C 12-02008 WHA,C 12-02008 WHA
• Parties: JUAN MANUEL VARGAS AND HILDA VARGAS, Plaintiffs, v. WELLS FARGO BANK, N.A. AKA WACHOVIA MORTGAGE, A DIVISION OF WELLS FARGO BANK, N.A. AND F/K/A WACHOVIA MORTGAGE FSB, FORMERLY KNOWN AS WORLD SAVINGS BANK, FSB, AS BENEFICIARY; CAL-WESTERN RECONVEYANCE CORPORATION, a CALIFORNIA CORPORATION and all persons claiming by, through, or under such entities or persons; and all persons unknown, claiming any legal or equitable right, title, estate, lien, or interest in the real property described in the complaint adverse to Plaintiffs title thereto, and DOES 1 through 100, inclusive, Defendants.
• Court: U.S. District Court — Northern District of California

JUAN MANUEL VARGAS AND HILDA VARGAS, Plaintiffs,

v. WELLS FARGO BANK, N.A. AKA WACHOVIA MORTGAGE, A DIVISION OF WELLS FARGO BANK, N.A.AND F/K/A WACHOVIA MORTGAGE FSB, FORMERLY KNOWN AS WORLD SAVINGS BANK, FSB, AS BENEFICIARY;CAL-WESTERN RECONVEYANCE CORPORATION, a CALIFORNIA CORPORATION and all persons claiming by,through, or under such entities or persons; and all persons unknown, claiming any legal or equitable right,title, estate, lien, or interest in the real property described in the complaint adverse to Plaintiffs title thereto,and DOES 1 through 100, inclusive, Defendants.

No. C 12-02008 WHA

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA

Dated: July 18, 2012

ORDER GRANTING

IN PART AND DENYING

IN PART DEFENDANT'S

MOTION TO DISMISS,

AND GRANTING

DEFENDANT'S REQUEST

FOR JUDICIAL NOTICE

INTRODUCTION

In this mortgage-loan dispute, defendant Wells Fargo Bank, N.A. moves to dismiss pursuant to FRCP 12(b)(6). For the reasons stated below, the motion is GRANTED IN PART AND DENIED IN PART.

STATEMENT

Plaintiffs are Juan Manuel Vargas and Hilda Vargas, individuals residing in San Mateo County. Defendants are Wells Fargo, successor by merger to Wachovia Mortgage, FSB,formerly known as World Savings Bank, FSB, and Cal-Western Reconveyance Corporation, acquirer of certain assets and liabilities of Wells Fargo. Defendants are involved in the mortgage business. In October 2007, plaintiffs entered into an ARM loan agreement with World Savings Bank, FSB, for refinancing of their primary residence (Compl. ¶ 8; RJN Exh. A). The $775,000 loan was secured by a deed of trust on real property located in Redwood City, California (ibid.). In January 2008, World Savings Bank, FSB, "change[d] its name to Wachovia Mortgage, FSB" (See RJN, Exhs. C, D). In November 2009, Wachovia Mortgage, FSB, merged into Wells Fargo (See RJN, Exhs. E-G).

Plaintiffs had difficulty making their mortgage payments, and in June 2009, "the defendant offered, and the plaintiffs accepted a loan modification agreement" (Compl. ¶ 10). In 2011, plaintiffs again fell behind on their payments, and Cal-Western Reconveyance Corporation, as agent for Wells Fargo, recorded a notice of default and election to sell in December 2011 (Compl. ¶¶ 7, 12; RJN Exhs. A, B). The sale was completed on April 9, 2012 (Br. 2; RJN Exh. K). The property reverted back to the beneficiary, Wells Fargo (RJN Exh. K).

Plaintiffs originally filed this action against defendants in San Mateo County Superior Court on March 19, 2012 (Case No. CIV512578). Wells Fargo then removed the action pursuant to 28 U.S.C. 1441 and 1332, and now moves to dismiss all claims. Plaintiffs allege the following claims against all defendants in this action: (1) violation of California Business and Professions Code Section 17200; (2) violation of California Financial Code Section 4973; (3) violation of California Civil Code Section 2923.5; (4) violations of California Civil Code Sections 1632 and 1632.5; (5) common law fraud and (6) common law negligence. Plaintiffs also seek a preliminary and permanent injunction and declaratory relief restraining defendants from selling the property or causing the property to be sold (Compl. ¶ 57).

ANALYSIS

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009). A claim is facially plausible when there are sufficient factual allegations to draw a reasonable inference that the defendant is liable for the conduct alleged.While a court "must take all of the factual allegations in the complaint as true," it is "not bound to accept as true a legal conclusion couched as a factual allegation." Id. at 677-79 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)) (internal quotation marks omitted). [C]onclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss for failure to state a claim." Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996) (citation omitted).

FRCP 9(b) requires that in all averments of fraud the circumstances constituting fraud must be stated with particularity. "Averments of fraud must be accompanied by 'the who, what, when, where, and how' of the misconduct charged." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2001) (citation omitted). A complaint must set forth what is false or misleading about a statement and why it is false — not merely neutral facts identifying the transaction. Id. at 1006. This order now considers the sufficiency of each of plaintiffs' claims against defendants in turn.

1. VIOLATION OF CALIFORNIA BUSINESS AND PROFESSIONS CODE SECTION 17200.

In their first claim, plaintiffs allege that defendants violated California Business and Professions Code Section 17200 "by discriminating against plaintiffs due to their race in connection with the type of loan product they were given, the higher interest rate adjustable mortgage note, and the exorbitant charges charged . . . over the loan term" (Compl. ¶ 20). Plaintiffs also claim that by virtue of defendants' allegedly discriminatory practices, "plaintiffs were placed with a mortgage note herein above described that the defendant[s] [k]new the plaintiffs could not afford" (id. ¶ 21).

Section 17200 "prohibits unfair competition, including unlawful, unfair, and fraudulent business acts." Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1143 (2003) (citations omitted). "Each prong of the UCL is a separate and distinct theory of liability." Birdsong v. Apple, Inc., 590 F.3d 955, 959 (9th Cir. 2009). "The UCL covers a wide range of conduct. It embraces anything that can properly be called a business practice and that at the same time is forbidden by law." Korea Supply, 29 Cal. 4th at 1143 (citations omitted). Section 17200 "borrows violations from other laws by making them independently actionable as unfaircompetitive practices. In addition, under Section 17200, a practice may be deemed unfair even if not specifically proscribed by some other law." Ibid. (citations omitted).

Here, defendant Wells Fargo argues that plaintiffs' Section 17200 claim fails for numerous reasons. First, Wells Fargo argues that plaintiffs' Section 17200 claim is time-barred by the statute of limitations (Br. 6). The statute of limitations for Section 17200 claims is governed by Section 17208, which imposes a four-year limitation. Wells Fargo argues that "[s]ince the UCL claim is based on the disclosures and underwriting of the loan in 2007," it is time-barred (Br. 6). If plaintiffs' UCL claim was based solely on the disclosures and underwriting of their 2007 loan, defendant would be correct in arguing that plaintiffs' claim is time-barred.

However, plaintiffs' complaint does not limit their UCL claim to the allegedly unfair practices of defendants in the origination of the 2007 loan. Plaintiffs' complaint also refers separately to their 2009 loan-modification agreement. According to the complaint, "on or about June 20, 2009, the defendant offered, and the plaintiffs accepted a loan modification that they had been told was the best terms that could be given to them" (Compl. ¶ 10). Plaintiffs further claim that "[d]uring the negotiations of the terms of the loan modification, the defendant, and each of them, failed to put the terms in Spanish to assure the plaintiffs would have a full opportunity and understanding of all the loan terms, both expressed and implied by the agreement" (Compl. ¶ 11). To the extent that plaintiffs' UCL claim arises out of the 2009 loan modification agreement, it is not time-barred by the four-year statute of limitations.

Second, Wells Fargo argues that plaintiffs' Section 17200 claim is insufficiently pled because plaintiffs fail to allege that Wells Fargo violated any of the three prongs of the UCL (Br. 6). This order will examine plaintiffs' Section 17200 claims with respect to each of these three prongs in turn.

A. Unlawful Business Act or Practice.

A claim based on the unlawful business act or practice prong of the UCL incorporates other laws and treats violations of those laws as unlawful business practices independently actionable under state law. Chabner v. United Omaha Life Ins. Co., 225 F.3d 1042, 1048(9th Cir. 2000). "A defendant cannot be liable under § 17200 for committing 'unlawful business practices' without having violated another law." Ingels v. Westwood One Broad. Servs., Inc., 129 Cal. App. 4th 1050, 1060 (2005) (quoting Scripps Clinic v. Superior Court, 108 Cal. App. 4th 917, 938-39 (2003)).

Here, Wells Fargo argues that plaintiffs have failed to claim Wells Fargo violated an underlying law separate from the UCL (Br. 6). Plaintiffs allege that defendants discriminated "against plaintiffs due to their race" and "engaged in discriminatory practices against the plaintiffs in connection with the terms and conditions of the refinance product given to them in 2007, as well as, in connection with terms of the modification agreement" (Compl. ¶¶ 14, 20). While plaintiffs' allegations may support a claim that defendants violated a law, it is unclear from plaintiffs' pleading what they claim the underlying violation to be. In order to prevail under Section 17200, plaintiffs must clarify the underlying violation arising out of these allegations.

B. Unfair Business Act or Practice.

Likewise, a claim based on the unfair business act or practice prong of the UCL must be "tethered" to allegations that defendants violated another law. Scripps Clinic, 108 Cal. App. 4th at 938 (holding that "the violation must be tethered to a constitutional or statutory provision or a regulation carrying out statutory policy"). The operative pleading must allege the way in which the practices violated the "borrowed" law by "stat[ing] with reasonable particularity the facts supporting the statutory elements of the violation." Khoury v. Maly's of California, Inc., 14 Cal....