Granados v. City National Bank

• Court: District Court, N.D. California
• Decided: September 27, 2024
• Docket: 4:23-cv-02948
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 ELIZABETH GRANADOS, Case No. 23-cv-02948-HSG

8 Plaintiff, ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S 9 v. MOTION TO DISMISS

10 WHARTON NOTE COMPANY, Re: Dkt. No. 61 11 Defendant.

12 13 Before the Court is Defendant’s motion to dismiss Plaintiff’s amended complaint, Dkt. No. 14 61. The Court finds the matter appropriate for disposition without oral argument and the matter is 15 deemed submitted. See Civil L.R. 7-1(b). The Court GRANTS the motion in part and DENIES it 16 in part. 17 I. BACKGROUND 18 Plaintiff Elizabeth Granados alleges that Defendant Wharton Note Company is wrongfully 19 seeking to foreclose on her property. See Dkt. No. 16 (“FAC”).1 Plaintiff states that in 2005 she 20 obtained a second-position mortgage in the amount of $120,000 from City National Bank 21 (“CNB”) and executed a deed of trust as security for the note. Id. at ¶ 12. Although at the time 22 Plaintiff owned the property with her former husband, only Plaintiff was listed as the “borrower” 23 for the loan. See id. Plaintiff alleges that she paid 25% of the balance between 2005 and 2008, 24 but acknowledges that she defaulted on the loan in 2010. Id. at ¶¶ 14–15. CNB then accelerated 25 the balance and declared the sum payable. Id. at ¶ 15. 26 According to Plaintiff, before any foreclosure action took place, her former husband—but 27 1 not Plaintiff—filed for bankruptcy in 2012 and listed the CNB loan as a scheduled debt. Id. at 2 ¶ 17. As part of his petition, her former husband also signed over the deed to the property, making 3 it the property of the bankruptcy estate. Id. Plaintiff contends that because only her name was 4 listed on the CNB note, the loan was unaffected by his bankruptcy discharge. See id. at ¶ 20. She 5 therefore stayed in close contact with CNB to negotiate an alternative to foreclosure. See id. at 6 ¶ 18. She alleges that CNB ultimately denied her loan modification application in May 2014, but 7 told her that the foreclosure action was on hold until further notice. Id. ¶ 19. Yet Plaintiff 8 contends that in 2014 she simply stopped receiving monthly statements—or any notices at all— 9 from CNB or any other entity. See id. at ¶¶ 20–21, 26–27. She filed for bankruptcy herself 10 multiple times from 2014 to 2018, but the cases were closed without a discharge. See id. at ¶¶ 22, 11 25. In particular, Plaintiff states that in her first bankruptcy filing in 2015, she scheduled the CNB 12 loan in the bankruptcy proceedings, and the case was closed without discharge. See id. at ¶ 22. 13 Plaintiff asserts that at this point she reasonably believed her loan had closed and had stopped 14 accruing interest because of the lack of communication from CNB. See id. at ¶ 27. 15 However, in November 2022, Plaintiff received a notice that CNB had transferred 16 servicing rights and ownership of the loan to Defendant Wharton. Id. ¶ 28. In March 2023, 17 Defendant recorded a notice of default on the property, stating that the amount owed was 18 $239,278.00, inclusive of monthly interest charged since 2015. Id. at ¶ 29. On June 30, 2023, 19 Defendant recorded a Notice of Trustee’s Sale and set the property for auction on July 26, 2023. 20 See Dkt. No. 17-1 at 4. 21 On July 21, 2023, Plaintiff filed an ex parte application in this Court for a temporary 22 restraining order (“TRO”) to enjoin the foreclosure sale, which the Court granted. Dkt. Nos. 17, 23 20. The parties stipulated to extend the TRO several times. See Dkt. Nos. 24, 27, 35, 38, 42, 55, 24 66, 76. Defendant now seeks to dismiss Plaintiff’s amended complaint. Dkt. No. 61 (“Mot.”). 25 Plaintiff opposes. Dkt. No. 63 (“Opp.”). 26 The amended complaint asserts that Defendant’s failure to timely collect and communicate 27 with Plaintiff about the loan’s status renders its current attempt to foreclose on the home 1 improper.2 FAC at ¶ 30. Plaintiff brings the following claims: (1) violation of the Federal Truth 2 in Lending Act (“TILA”); (2) breach of the implied covenant of good faith and fair dealing; (3) 3 violation of the Fair Debt Collections Practices Act (“FDCPA”); (4) violation of 12 C.F.R. § 4 1024.41, which requires a servicer to transmit billing statements; and (5) violations of several 5 California statutes. See id. at ¶¶ 33–85. 6 II. LEGAL STANDARD 7 Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain 8 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A 9 defendant may move to dismiss a complaint for failing to state a claim upon which relief can be 10 granted under Rule 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only where the 11 complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” 12 Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule 13 12(b)(6) motion, a plaintiff need only plead “enough facts to state a claim to relief that is plausible 14 on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible 15 when a plaintiff pleads “factual content that allows the court to draw the reasonable inference that 16 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 17 In reviewing the plausibility of a complaint, courts “accept factual allegations in the 18 complaint as true and construe the pleadings in the light most favorable to the nonmoving party.” 19 Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Nevertheless, 20 courts do not “accept as true allegations that are merely conclusory, unwarranted deductions of 21 fact, or unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 22 2008) (quoting Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001)). 23 III. DISCUSSION 24 A. TILA and TILA Implementing Regulations 25 Plaintiff’s complaint alleges that CNB’s failure to send her monthly notices violated 26 TILA’s periodic notice requirement. See FAC ¶¶ 32–36. Under TILA, “a creditor, assignee, or 27 1 servicer with respect to any residential mortgage loan shall transmit to the obligor, for each billing 2 cycle, a statement setting forth” information about the loan, including the amount owed on the 3 principal, the interest rate, and any late payment fees. See 15 U.S.C. § 1638(f). TILA’s 4 implementing regulations impose similar obligations. See 12 C.F.R. § 1026.41(a)–(d) (obligations 5 extend to a “creditor, assignee, or servicer, as applicable”). Defendant argues two grounds to 6 dismiss Plaintiff’s claims under these statutes: 1) the claims are time-barred, and 7 2) CNB was exempt from the requirement to provide statements to Plaintiff due to her husband’s 8 bankruptcy. 9 i. Statute of limitations 10 Defendant argues Plaintiff’s TILA claims are time-barred by the statute’s one-year 11 limitations period because Plaintiff had knowledge of CNB’s failure to provide periodic 12 statements no later than 2018, but did not bring her claims until 2023. Mot. at 17–19. However, 13 Plaintiff’s complaint alleges that she reasonably believed the loan was closed until November 14 2022, when she received a communication from CNB indicating that the loan had been transferred 15 to Defendant. FAC ¶ 19. Based on these facts, Plaintiff argues that the discovery rule should toll 16 her TILA claims to that point, such that her July 2023 complaint is timely. Opp. at 12. 17 The statute of limitations for a TILA claim is normally one year from the date of the 18 consumer transaction between the parties. King v. State of Cal., 784 F.2d 910, 915 (9th Cir. 1986) 19 (citing 15 U.S.C. § 1640(e)). But as the Ninth Circuit has clarified, the discovery rule may toll 20 this deadline until the “borrower discovers or had reasonable opportunity to discover the fraud or 21 nondisclosures that form the basis of the TILA action.” See id. Accordingly, “‘[a] district court 22 may dismiss a claim if the running of the statute is apparent on the face of the complaint,” but 23 “only if the assertions of the complaint, read with the required liberality, would not permit the 24 plaintiff to prove that the statute was tolled.” Alphonso v. Real Time Resols., Inc., No. 23-CV- 25 01488-JSC, 2023 WL 3794502, at *3 (N.D. Cal. June 2, 2023) (quoting Cervantes v. Countrywide 26 Home Loans, Inc., 656 F.3d 1034, 1045 (9th Cir. 2011)). 27 Here, Plaintiff argues that she reasonably believed the loan was “charged off” due to the 1 about the loan between 2014 and 2022. Opp. at 6. She also alleges that in 2015, CNB’s loan 2 officer told her that “[a]t this time, until further notice, CNB has placed the foreclosure action on 3 hold.” FAC ¶ 19. Finally, Plaintiff maintains that she asked the loan officer for an accounting of 4 the loan in 2015 after the statements stopped, but never received a response. Id. ¶ 23. 5 The Court finds these facts sufficient to plausibly allege that the discovery rule could apply 6 to toll Plaintiff’s TILA claims. Defendant argues that tolling is not available because Plaintiff’s 7 amended complaint shows that Plaintiff did, in fact, have knowledge of the loan’s current status 8 and CNB’s alleged notice violations as early as 2015 and as late as 2018. Mot. at 18. Defendant’s 9 support for this argument is contained in the bankruptcy records attached to its request for judicial 10 notice rather than facts alleged in the complaint. See id. (citing Dkt. No. 61-2, Defendant’s 11 Request for Judicial Notice). While the Court may take judicial notice of the undisputed fact of 12 Plaintiff’s and her husband’s bankruptcies as evident in the bankruptcy records, it may not take 13 judicial notice of the disputed facts contained within those records. See Khoja v. Orexigen 14 Therapeutics, Inc., 899 F.3d 988, 999 (9th Cir. 2018) (“[A] court may take judicial notice of 15 matters of public record without converting a motion to dismiss into a motion for summary 16 judgment,” but it “cannot take judicial notice of disputed facts contained in such public records.”) 17 (internal quotations and citation omitted). 18 Defendant also asserts that Plaintiff fails to cite “one objective communication from 19 anyone supporting that [sic] Plaintiff’s conclusion that [the] loan was forgiven,” and further claims 20 that Plaintiff would have known about the loan if she took “reasonable steps” to inquire about its 21 status. Mot. at 18. But accepting the allegations on the face of Plaintiff’s complaint as true and 22 viewing them in the light most favorable to her, it is plausible that the email Plaintiff received 23 from CNB stating that the foreclosure was “on hold” led her to believe the loan was forgiven, and 24 that her subsequent unanswered inquiry to CNB about the status of the loan amounted to 25 reasonable diligence. Accordingly, Plaintiff has adequately pled facts that could establish she did 26 not have reason to discover the TILA violations until November 2022, and the Court may not 27 dismiss her TILA claims as time-barred. To the extent discovery reveals a basis for seeking 1 ii. Bankruptcy exemption 2 Defendant next argues that even if Plaintiff’s TILA claims are not time-barred, the claims 3 nonetheless fail because CNB was exempt from the requirement to send periodic statements under 4 TILA’s implementing regulations, 12 C.F.R. § 1026.41. Mot. at 12–15. Two different versions of 5 this exemption were applicable during the period in which Plaintiff alleges the notice violations 6 occurred. Prior to 2018, the exemption provided, 7 “A servicer is exempt from the requirements of this section for a mortgage loan while the 8 consumer is a debtor in bankruptcy under Title 11 of the United States Code.” 9 12 C.F.R. § 1026.41(e)(5) (2014) (amended 2018). Then in 2018, this provision was modified to 10 add additional requirements for servicers to qualify for the bankruptcy exemption: 11 “(i) Exemption. Except as provided in paragraph (e)(5)(ii) of this section, a servicer is 12 exempt from the requirements of this section with regard to a mortgage loan if: 13 (A) Any consumer on the mortgage loan is a debtor in bankruptcy under title 11 of 14 the United States Code or has discharged personal liability for the mortgage loan 15 pursuant to 11 U.S.C. 727, 1141, 1228, or 1328; and 16 (B) With regard to any consumer on the mortgage loan: . . . 17 (2) The consumer’s bankruptcy plan provides that the consumer will 18 surrender the dwelling securing the mortgage loan, provides for the 19 avoidance of the lien securing the mortgage loan, or otherwise does not 20 provide for, as applicable, the payment of pre-bankruptcy arrearage or the 21 maintenance of payments due under the mortgage loan. . . .” 22 12 C.F.R. § 1026.41(e)(5) (2018) (current). Defendant claims that under both versions of the 23 statute, CNB was exempt from any obligation to provide statements to Plaintiff between 2015 and 24 2022. Mot at 12. 25 Beginning with the current version of the bankruptcy exemption, Defendant alleges that 26 requirement (B)(2) above is met here because Plaintiff’s husband’s bankruptcy plan “did not 27 provide for cure of the arrearages or maintenance of payments, and because Plaintiff’s Husband 1 14. Plaintiff disputes this, arguing that CNB’s continued charging of interest on the loan suggests 2 the bankruptcy plan may have, in fact, provided for “the maintenance of payments.” See Opp. at 3 15 (citing Gonzalez v. Specialized Loan Servicing, LLC, 691 F. Supp. 3d 1162, 1172 (C.D. Cal. 4 2023) (“[T]he fact that Defendant seeks to collect interest accrued on the loan suggests the 5 bankruptcy plan may have provided for the ‘maintenance of payments due under the mortgage 6 loan’ in some form.”)). To support its argument, Defendant once again improperly relies on 7 disputed facts contained in the bankruptcy documents attached to its request for judicial notice. 8 See Mot. at 14. Accordingly, the Court cannot conclude as a matter of law that the later version of 9 the bankruptcy exemption applies here such that Plaintiff’s TILA claims must be dismissed. 10 Plaintiff’s allegation that she, the obligor on the mortgage loan, never received periodic statements 11 from CNB, her creditor, is therefore sufficient for her TILA-related claims to survive Defendant’s 12 motion to dismiss. See 15 U.S.C. § 1639(f); 12 C.F.R. § 1026.41(a)–(d). Defendant may raise 13 arguments about whether it was exempt from sending statements during some period at a later 14 stage based on the development of an actual factual record. 15 iii. “Charged off” loan exemption 16 Plaintiff’s complaint also cites a second provision of the TILA implementing regulations: 17 12 C.F.R. § 1026.41(e)(6). This provision exempts loan servicers from sending periodic 18 statements for “charged off” loans, but the statement obligation resumes if the servicer “fails at 19 any time to treat a mortgage loan that is exempt under paragraph (e)(6)(i) of this section as 20 charged off or charges any additional fees or interest on the account.” See id. § 1026.41(e)(6)(ii)– 21 (iii). According to Plaintiff, her loan was charged off in 2015 when she last heard any 22 communication from CNB, but CNB continued to assess late payments and interest, without 23 sending periodic statements as required by exemption (e)(6). See FAC ¶ 69; Opp. at 10. Plaintiff 24 argues that these fees were therefore unlawful because (e)(6) “disallows the servicer from 25 charging interest [on a charged off loan] without sending monthly statements.” FAC ¶ 58. 26 Defendant counters that this theory is implausible because Plaintiff does not plead that 27 Defendant sent her an official charge-off notice, which is a prerequisite that exemption (e)(6) 1 § 1026.41(e)(6)(i)(B) (emphasis added). But Defendant does not cite any authority holding that 2 Plaintiff must plead at this stage that Defendant met this formal notice requirement in order to 3 state her own claim. See Dkt. No. 71 at 8 (citing Supriyanto v. Bank of New York Mellon, No. 4 LACV2107635JAKEX, 2022 WL 1843132, at *4–5 (C.D. Cal. Apr. 4, 2022) (addressing 5 application of discovery rule to 12 C.F.R. § 1026.7 claim, not charged off loan exemption)). 6 Moreover, Plaintiff’s complaint specifically alleges that she received notice of the loan being 7 charged off via an email from CNB’s loan officer, and that she was still charged monthly interest 8 and late fees for years after the alleged charge-off. Id. ¶¶ 20, 29. Such facts are sufficient for 9 Plaintiff to plausibly allege the application of exemption (e)(6), such that CNB and Defendant 10 should have been providing periodic statements if her loan was charged off, as she claims. Cf. 11 Novobilski v. Specialized Loan Servicing, LLC, No. 222CV00147MEMFMAR, 2022 WL 12 3566812, at *10 (C.D. Cal. Aug. 16, 2022) (holding that plaintiffs did not adequately plead 13 charged off loan theory because they “failed to provide any insight into why they believed the loan 14 was charged off”); May v. Specialized Loan Servicing, LLC, No. EDCV23417JGBSHKX, 2023 15 WL 8885140, at *4 (C.D. Cal. Apr. 27, 2023) (similarly dismissing claim alleging failure to 16 provide periodic statements on a charged off loan because plaintiffs only “allege[d] that they were 17 advised their loan was charged off . . . but not when or how they were so advised”). Again, at the 18 summary judgment stage, Defendant may raise the argument that Plaintiff’s loan was not charged 19 off as a factual matter based on actual facts developed in discovery. 20 The Court thus DENIES Defendant’s motion to dismiss Plaintiff’s TILA and 21 Section 1026.41 claims.3 22 // 23 // 24 // 25

26 3 In its reply, Defendant argues that an “attendant community property discharge” separate from Plaintiff’s husband’s personal bankruptcy discharge also prohibited CNB from sending any 27 notices to Plaintiff. See Dkt. No. 71 at 6. Given that this argument was only raised on reply, the 1 B. FDCPA 2 Defendant argues that Plaintiff’s FDCPA claim is time-barred because the statute of 3 limitations is one year, and it is not subject to equitable tolling. Mot. at 17. Defendant is correct 4 that an FDCPA claim is not subject to the discovery rule, and its one-year statutory period begins 5 to accrue “when a violation occurs.” See Rotkiske v. Klemm, 589 U.S. 8, 14 (2019). Whether 6 Plaintiff’s claim is timely therefore depends on her framing of CNB’s and Defendant’s alleged 7 FDCPA violations. 8 Plaintiff’s amended complaint cites FDCPA provisions that prohibit debt collectors from 9 making a false representation about the character, amount, or legal status of a debt (15 U.S.C. § 10 1692(e)(A)(2)); threatening to take action that cannot be legally taken (id. § 1692(e)(A)(5)); using 11 a false representation to attempt to collect the debt (id. § 1692(e)(A)(10)); and attempting to 12 collect an amount not expressly authorized by the loan agreement (id. § 1692(f)(1)). Defendant 13 maintains that all of these allegations are entirely premised on CNB’s alleged forgiveness of 14 Plaintiff’s loan and subsequent unlawful charges starting in 2014, such that the one-year statute of 15 limitations bars the claim. Mot. at 17. Defendant separately argues that it is not a “debt collector” 16 subject to FDCPA regulations because it was “solely exercis(ing) its rights to foreclose on a 17 security interest.” Mot. at 20. 18 In her opposition, Plaintiff clarifies that her FDCPA claim is not premised on CNB’s 19 actions or Defendant’s attempt to foreclose on her property, but rather her allegation that 20 Defendant misrepresented the amount Plaintiff owed by demanding late fees and interest 21 unlawfully assessed on her “charged off” loan. Opp. at 19. Under this theory, her claim could be 22 timely, and the facts pled may be sufficient to establish that Defendant acted as a debt collector 23 subject to the FDCPA. Id. Still, Plaintiff requests leave to amend her claim to “better articulate” 24 these points. Id. The Court thus GRANTS Defendant’s motion to dismiss Plaintiff’s FDCPA 25 claim with leave to amend. 26 C. Breach of Implied Covenant of Good Faith and Fair Dealing 27 Plaintiff also brings a claim for breach of the implied covenant of good faith and fair 1 mortgage holder transferred to Defendant when Defendant was assigned the deed of trust and 2 mortgage note. FAC ¶ 46. She alleges Defendant and CNB “through their own inaction interfered 3 with [her] ability to perform on the contract and thereby induced Plaintiff’s breach.” Id. ¶ 48. 4 The Court finds that these facts do not sufficiently plead the elements of a claim for breach 5 of the implied covenant of good faith and fair dealing. Under California law, this covenant 6 “imposes upon each contracting party the duty to refrain from doing anything which would render 7 performance of the contract impossible by any act of his own.” Harm v. Frasher, 181 Cal. App. 8 2d 405, 417 (1960) (emphasis added). Plaintiff claims that Defendant’s inaction “induced 9 Plaintiff’s breach” for eight years. But Defendant did not take over her loan until November 2022, 10 well after it had become due. FAC ¶ 28. Plaintiff also acknowledges that at time the transfer 11 occurred, CNB informed Plaintiff that Defendant would be taking over the loan, and only three 12 months later Defendant sent Plaintiff a notice of default. Id. ¶¶ 28–29. Given that even as alleged, 13 Defendant took prompt action to communicate with Plaintiff about the status of her loan once it 14 was assigned, it is not plausible that Defendant’s “inaction” over the course of approximately four 15 months could have induced Plaintiff’s failure to pay her mortgage for nearly eight years prior to 16 that period. Cf. Gonzalez, 691 F. Supp. 3d at 1174 (holding that breach of fair dealing claim was 17 plausibly pled where defendant had assumed responsibility for plaintiff’s debt without informing 18 plaintiff, and at an unknown time during a 14-year period in which notices were not sent). 19 Moreover, Plaintiff does not cite any authority for the notion that because the terms of the deed of 20 trust apply to Defendant as assignee, Defendant is also liable for CNB’s alleged prior bad faith 21 dealing under those terms (which is a different question than whether Defendant may collect on 22 any fees CNB charged in bad faith). Thus, the Court GRANTS Defendant’s motion to dismiss 23 Plaintiff’s claim for breach of the implied covenant of good faith and fair dealing.4 24 // 25 // 26

27 4 Because the Court concludes Plaintiff has not plausibly alleged that Defendant interfered with 1 D. California Statutes 2 Plaintiff also brings claims under several California statutes, including California Civil 3 Code Sections 2924.17, 2954.5, and 2966, and California’s Unfair Competition Law (“UCL”). 4 i. Cal. Civ. Code § 2924.17 and 2954.5 5 California Civil Code Section 2924.17 provides that a notice of default in connection with 6 a foreclosure “shall be accurate and complete,” and that before sending any such notice, a 7 mortgage servicer must “ensure that it has reviewed competent and reliable evidence to 8 substantiate the borrower’s default and the right to foreclose, including the borrower’s loan status 9 and loan information.” Cal. Civ. Code § 2924.17(a)–(b). Plaintiff alleges that Defendant violated 10 this statute by serving her an inaccurate notice of default, “considering it is prohibited from 11 accruing interest and late fees on the loan for the time it was charged off per TILA as stated supra 12 and 2954 as stated below.” FAC ¶¶ 66–69. 13 Plaintiff’s Section 2924.17 claim references California Civil Code Section 2954.5, which 14 requires lenders to notify borrowers in writing before assessing any default, delinquency, or late 15 payment charge on a mortgage loan. Cal. Civ. Code § 2954.5(a). Plaintiff argues that the late fees 16 and interest payments Defendant has inherited on her loan are unlawful because CNB charged 17 them without first notifying her, in violation of this statute. FAC ¶¶ 72–73. This argument may 18 be partly correct, as according to the statutory language of Section 2954.5, a lender’s failure to 19 notify a borrower in advance of a late fee excuses the borrower’s “obligation to pay a late payment 20 charge.” See Cal. Civ. Code § 2954.5(e). However, the statute only covers “default, delinquency, 21 or late payment charge[s],” not interest payments. See id. § 2954.5(a); see also Warren v. 22 Specialized Loan Servicing, LLC, No. 5:23-CV-00887-SPG-SHK, 2024 WL 3207003, at *4 (C.D. 23 Cal. Mar. 1, 2024) (holding that Section 2954.5 “does not govern the charging of interest on a 24 loan”). Accordingly, Plaintiff’s Section 2954.5 claim is only viable as to the allegedly unlawful 25 late fees assessed on her loan without the proper notice, and not as to interest accrued. And in 26 turn, her 2924.17 claim is plausible to the extent it alleges that late fees assessed in violation of 27 Section 2954.5, and charges assessed in violation of TILA, inaccurately inflated the default 1 Defendant argues that TILA impliedly preempts these state notice requirements because, 2 under TILA, Defendant “could not send payment statements or late charge notices during the 3 bankruptcies or after the Discharge or it would face legal liability.” Mot. at 21. But the Court has 4 determined that Plaintiff’s theory of TILA liability, which alleges the statute did require CNB and 5 Defendant to provide periodic notices, is plausible on the face of her complaint. Thus, accepting 6 this theory as true, the notice requirements under these California statutes would be entirely 7 consistent with TILA, and the state statutes would not be preempted. See 15 U.S.C. § 1610 8 (preempting state law disclosure statutes “only to the extent that those laws are inconsistent with 9 the provisions of” TILA). 10 In sum, the Court DENIES Defendant’s motion to dismiss Plaintiff’s Section 2954.5 claim 11 premised on the assessment of late charges. Similarly, the Court DENIES the motion to dismiss 12 Plaintiff’s Section 2924.17 claim to the extent it relies on the unlawful assessment of late fees 13 under Section 2954.5 and TILA violations. 14 ii. Cal. Civ Code § 2966 15 Plaintiff brings a claim under California Civil Code Section 2966 on the basis that 16 Defendant failed to provide adequate notice of the “balloon payment” due on Plaintiff’s mortgage. 17 Opp. at 21. Defendant is correct that this statute is inapplicable here. Section 2966 only applies to 18 “a transaction regulated by [the] article” in which it appears, which in turn applies to “a 19 transaction for the purchase of a dwelling for not more than four families in which there is an 20 arranger of credit, which purchase includes an extension of credit by the vendor.” See Cal. Civ. 21 Code §§ 2966, 2956. The code defines an “arranger of credit” as either: 1) “[a] person, other than 22 a party to the credit transaction . . . who is involved in developing or negotiating credit terms,” or 23 2) “[a] party to the transaction who is either a real estate licensee . . . or is an attorney . . . if neither 24 party to the transaction is represented by an agent who is a real estate licensee.” Id. § 2958(a). 25 As pled, the transaction financing Plaintiff’s mortgage note involved Plaintiff, her husband, and 26 CNB, FAC ¶ 12, none of whom constitute an “arranger of credit” under the statute. Accordingly, 27 the Court GRANTS Defendant’s motion to dismiss Plaintiff’s claim under Section 2966 with 1 the deficiencies in this claim given the facts Plaintiff has already pled). 2 iii. Unfair Competition Law 3 Finally, Plaintiff brings a state law claim under the UCL, which prohibits “any unlawful, 4 unfair or fraudulent business act or practice.” See Cal. Bus. & Prof. Code § 17200. Her complaint 5 only alleges violations of the statute’s unlawful prong, which “borrows” violations of other federal 6 and state laws. See FAC ¶¶ 81, 82; Pac. Steel Grp. v. Com. Metals Co., No. 20-CV-07683-HSG, 7 2024 WL 3236705, at *12 (N.D. Cal. June 28, 2024). Confusingly, Plaintiff’s opposition to the 8 motion to dismiss also recites the standards for the UCL’s unfair and fraudulent prongs, but 9 neither her opposition nor her complaint submits any specific facts to support these theories. See 10 Opp. at 16. As such, the Court will only address Plaintiff’s UCL claim as pled under the statute’s 11 unlawful prong. 12 Defendant argues that Plaintiff lacks standing to assert her UCL claim, citing Novobilski v. 13 Specialized Loan Servicing, LLC, 2022 WL 3566812, at *15 (C.D. Cal. Aug. 16, 2022), which 14 held that plaintiffs lacked standing under the UCL because they failed to establish a causal link 15 between their economic injury and the loan servicer’s conduct. See id.; Mot. at 22–23. 16 Although the case Defendant cites is not controlling here, the Court agrees that Plaintiff’s 17 amended complaint has not sufficiently alleged her standing to bring a UCL claim. The complaint 18 states that Defendant’s violations of the “Consumer Finance Regulations” and its breach of the 19 implied covenant of good faith and fair dealing are the predicate violations underlying Plaintiff’s 20 UCL claim, and that her injury is “the destruction of her credit.” FAC ¶¶ 81–83. In Plaintiff’s 21 opposition to the motion to dismiss, she also describes her injury for UCL purposes as “the 22 imminent loss of her home.” Opp. at 22. 23 While Plaintiff’s alleged injuries may constitute economic injury, Plaintiff must still satisfy 24 the UCL’s causation element, which requires that a Plaintiff “show that that economic injury was 25 the result of, i.e., caused by, the unfair business practice.” (Junod v. Mortg. Elec. Registration 26 Sys., Inc., 584 F. App’x 465, 469 (9th Cir. 2014) (quoting Kwikset Corp. v. Superior Court, 51 27 Cal.4th 310 (2011)). Applying this standard, the Court finds that Plaintiff’s complaint fails to 1 provide required notices, unlawful charging of late fees and interest) caused Plaintiff’s injuries as 2 pled in her UCL claim. First, Plaintiff cannot show that Defendant’s unfair business practices, 3 rather than her failure to make her mortgage payments, led to the threatened foreclosure of her 4 home. See Junod, 584 F. App’x at 469; see also Braxton v. Select Portfolio Servicing, Inc., No. 5 18-CV-03271-JSW, 2018 WL 11471250, at *6 (N.D. Cal. Sept. 17, 2018) (holding that because 6 plaintiff “defaulted on her loan prior to the acts that she alleges violated the UCL,” she could not 7 “allege the requisite causal connection” between the violations and her foreclosure). Similarly, 8 “while overcharges and destruction of credit can constitute monetary loss sufficient to confer 9 standing to bring suit under the UCL, the plaintiff must connect that injury to the unlawful conduct 10 alleged.” Berkeley v. Wells Fargo Bank, No. 15-CV-00749-JSC, 2015 WL 6126815, at *15 (N.D. 11 Cal. Oct. 19, 2015). And here, Plaintiff does not allege any facts connecting the destruction of her 12 credit to CNB’s or Defendant’s failure to provide periodic statements and/or the assessment of late 13 fees and interest. The Court therefore GRANTS Defendant’s motion to dismiss Plaintiff’s UCL 14 claim with leave for Plaintiff to amend in accordance with the Court’s Order. 15 IV. CONCLUSION 16 The Court GRANTS IN PART and DENIES IN PART Defendant’s motion to dismiss as 17 follows: 18 • The Court DISMISSES the FDCPA claim with leave to amend. 19 • The Court DISMISSES the breach of the implied covenant of good faith and fair 20 dealing claim with leave to amend. 21 • The Court DISMISSES the Cal. Civ Code § 2966 claim with leave to amend. 22 • The Court DISMISSES the UCL claim with leave to amend. 23 Any amended complaint must be filed within 21 days of the date of this order. This order 24 terminates Dkt. No. 61. 25 The Court further SETS case a case management conference on October 15, 2024, at 2:00 26 p.m. The hearing will be held by Public Zoom Webinar. All counsel, members of the public, and 27 media may access the webinar information at https://www.cand.uscourts.gov/hsg. All attorneys 1 minutes before the hearing to check in with the courtroom deputy and test internet, video, and 2 || audio capabilities. The parties are further DIRECTED to file a joint case management statement 3 by October 8, 2024. The Court is strongly of the view that now is the time for the parties to renew 4 || good-faith settlement discussions in this case. 5 IT IS SO ORDERED. 6 || Dated: 9/27/2024 □ ’ HAYWOOD S. GILLIAM, JR. 8 United States District Judge 9 10 11 12

Z 18 19 20 21 22 23 24 25 26 27 28