Case Title: Sheen v. Wells Fargo Bank, N.A.

Citation: 

Docket Number: S258019

State: california

Court: California Supreme Court

Date: 2022-03-07T00:00:00Z

Document:
IN THE SUPREME COURT OF 
CALIFORNIA 
 
KWANG K. SHEEN, 
Plaintiff and Appellant, 
v. 
WELLS FARGO BANK, N.A., 
Defendant and Respondent. 
 
S258019 
 
Second Appellate District, Division Eight 
B289003 
 
Los Angeles County Superior Court 
BC631510 
 
March 7, 2022 
 
Chief Justice Cantil-Sakauye authored the opinion of the 
Court, in which Justices Corrigan, Liu, Kruger, Groban, 
Jenkins, and McConnell* concurred. 
 
Justice Liu filed a concurring opinion. 
 
Justice Jenkins filed a concurring opinion. 
 
 
* 
Administrative Presiding Justice of the Court of Appeal, 
Fourth Appellate District, Division One, assigned by the Chief 
Justice pursuant to article VI, § 6 of the California Constitution. 
 
1 
 
SHEEN v. WELLS FARGO BANK, N.A. 
S258019 
 
Opinion of the Court by Cantil-Sakauye, C. J. 
 
 
Several years after purchasing his house, plaintiff Kwang 
K. Sheen used the home as collateral for two loans he took from 
defendant Wells Fargo Bank, N.A. (Wells Fargo).  Plaintiff 
subsequently suffered financial setbacks and missed payments 
on these junior loans.  He submitted applications to Wells Fargo 
to modify the loans, but Wells Fargo did not respond.  Instead, 
it sent plaintiff letters informing him of the actions it might take 
because of the delinquency of his accounts.  The letters did not 
specifically mention foreclosure.  Plaintiff alleges that because 
“Wells Fargo did not provide [him] with a written determination 
regarding his eligibility for modification” of the loans prior to 
sending him the letters, plaintiff “believed the letters meant 
that the . . . Loans had been modified such that they were 
unsecured loans” and his house “would never be sold at a 
foreclosure auction.”  Eventually, Wells Fargo sold plaintiff’s 
debt.  Four years later, the owner of the debt foreclosed on 
plaintiff’s home.  Plaintiff sued Wells Fargo. 
 
Specifically, plaintiff asserted a negligence claim against 
Wells Fargo, alleging that the bank “owed Plaintiff a duty of care 
to process, review and respond carefully and completely to the 
loan modification applications Plaintiff submitted.”  Plaintiff 
alleged that Wells Fargo breached this duty, causing him to 
“forgo alternatives to foreclosure,” and hence Wells Fargo is 
liable for monetary damages relating to the loss of his house, 
including the value of the home, the hotel and storage costs 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
2 
plaintiff incurred when he had to vacate the property, and the 
damage to his credit rating.  Wells Fargo demurred, arguing 
that it owed plaintiff no such duty.  The Court of Appeal 
affirmed the lower court’s decision to sustain the demurrer but 
noted that “[t]he issue of whether a tort duty exists for mortgage 
modification has divided California courts for years.”  (Sheen v. 
Wells Fargo Bank, N.A. (2019) 38 Cal.App.5th 346, 348 (Sheen).) 
 
In this case, we address the issue dividing the lower 
courts:  Does a lender owe the borrower a tort duty sounding in 
general negligence principles to (in plaintiff’s words) “process, 
review and respond carefully and completely to [a borrower’s] 
loan modification application,” such that upon a breach of this 
duty the lender may be liable for the borrower’s economic 
losses — i.e., pecuniary losses unaccompanied by property 
damage or personal injury?  (See, e.g., Southern California Gas 
Leak Cases (2019) 7 Cal.5th 391, 398 (Gas Leak Cases).)  We 
conclude that there is no such duty, and thus Wells Fargo’s 
demurrer to plaintiff’s negligence claim was properly sustained. 
 
Neither plaintiff’s assertion of a “special relationship” 
between himself and Wells Fargo nor his invocation of the 
factors articulated in Biakanja v. Irving (1958) 49 Cal.2d 647, 
650 (Biakanja) provides a compelling basis to recognize such a 
duty.  Plaintiff’s claim arises from the mortgage contract he had 
with Wells Fargo, and as such, falls within the ambit of the 
economic loss doctrine.  That judicially created doctrine bars 
recovery in negligence for pure economic losses when such 
claims would disrupt the parties’ private ordering, render 
contracts less reliable as a means of organizing commercial 
relationships, and stifle the development of contract law.  (See, 
e.g., Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
3 
34 Cal.4th 979, 988–989 (Robinson); Rest.3d Torts, Liability for 
Economic Harm (June 2020) § 3, com. b., p. 3 (Restatement).) 
There is good reason to adhere to the economic loss rule in 
this case, given the nature of the parties’ contractual 
relationship and how that relationship might be disrupted by 
recognition of the duty plaintiff advances.  In addition, we 
recognize the role of the Legislature, which is better positioned 
to act in this extensively regulated area.  Plaintiff’s rationale for 
imposing a duty cannot easily be cabined to the mortgage 
context and there are real costs associated with the duty 
plaintiff proposes — costs that, among other things, pit the 
interests of homeowners in default against those seeking 
affordable home loans.  Such a balancing of interests, and more 
generally of the “social costs and benefits” (Aas v. Superior Court 
(2000) 24 Cal.4th 627, 652 (Aas)) implicated by plaintiff’s 
contentions, is best performed by the Legislature. 
Meanwhile, because plaintiff does not assert an action for 
negligent misrepresentation nor one for promissory estoppel, we 
have no reason to consider whether either or both of these claims 
might be viable given the facts he alleges.  More generally, 
nothing we say in this opinion should be understood to 
categorically preclude those claims in the mortgage modification 
context. 
The Court of Appeal came to the same conclusion that we 
do — there is no duty of the sort pressed by plaintiff.  We 
therefore affirm the judgment below. 
I.  BACKGROUND 
Because this case comes to us after the trial court 
sustained Wells Fargo’s demurrer, we take as true all properly 
pleaded material facts, but not conclusions of fact or law 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
4 
asserted in the complaint.  (See, e.g., Gas Leak Cases, supra, 
7 Cal.5th at p. 395; Moore v. Regents of University of California 
(1990) 51 Cal.3d 120, 125.) 
Plaintiff alleges that in 1998, he purchased a home (“the 
Property”) in Los Angeles using a “first-lien mortgage loan . . . 
secured by the Property.”  That loan is not at issue in this case.  
Seven years later, plaintiff obtained two loans from Wells Fargo 
secured by the same property.  These two loans, which the 
complaint refers to as the “Second Loan” and the “Third Loan,” 
were in the amounts of $167,820 and $82,037.14, respectively. 
Beginning in 2008 or 2009, plaintiff missed a number of 
payments on the Second and Third Loans because of financial 
difficulties he experienced “in the wake of the global financial 
crisis.”  Wells Fargo recorded notices of default in connection 
with the loans and scheduled a foreclosure sale of the Property 
for early February 2010. 
Plaintiff and his legal representative subsequently 
contacted Wells Fargo “regarding the possibility of cancelling 
the foreclosure sale . . . so that Plaintiff could apply and be 
considered for modification for the Second and Third Loans.”  In 
late January 2010, plaintiff submitted applications to modify 
the Second and Third Loans.  About a week thereafter, Wells 
Fargo cancelled the February foreclosure sale date. 
Plaintiff alleges that “Wells Fargo never contacted 
Plaintiff about the status of his mortgage applications” nor 
informed him “whether his applications for modification of the 
Second and Third Loans had been approved or rejected.”  On or 
about March 17, 2010 — a month and a half after plaintiff 
submitted his applications — Wells Fargo sent plaintiff two 
almost identical letters, one in connection with each of the loans.  
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
5 
Although the complaint does not attach a copy of the letters, it 
does quote a paragraph from the communications, which reads: 
“Due to the severe delinquency of your account, it 
has been charged off and the entire balance has been 
accelerated.  Accordingly, your entire balance is now 
due and owing.  In addition, we have reported your 
account as charged off to the credit reporting 
agencies to which we report.  As a result of your 
account’s charged off status, we will proceed with 
whatever action is deemed necessary to protect our 
interests.  This may include, if applicable, placing 
your account with an outside collection agency or 
referring your account to an attorney with 
instructions to take whatever action is necessary to 
collect this account.  Please be advised that if Wells 
Fargo elects to pursue a legal judgment against you 
and is successful, the amount of the judgment may 
be further increased by court costs and attorney 
fees.” 
Also pursuant to the complaint, the letters advised plaintiff “to 
call Wells Fargo immediately if he had any questions.” 
 
Plaintiff alleges he “believed the letters meant that the 
Second and Third Loans had been modified such that they were 
unsecured loans . . . and that the Property would never be sold 
at a foreclosure auction in connection with either the Second or 
the Third Loan as a result of these modifications.”  Plaintiff 
based this belief not just on the letters themselves, but also on 
the fact that they had been sent when Wells Fargo had not yet 
responded to his mortgage modification applications.  According 
to plaintiff, he “received the March 17, 2010 letters while his 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
6 
applications for mortgage modification were still pending, as 
Wells Fargo did not provide Plaintiff with a written 
determination regarding his eligibility for modification of the 
Second and Third Loans prior to March 17, 2010.  [¶]  Plaintiff 
therefore believed that Wells Fargo sent the March 17, 2010 
letters in response to the applications for mortgage modification 
that he had submitted to Wells Fargo in or about January 2010.  
He believed that the letters meant that the Second and Third 
Loans had been modified such that . . . the Property would never 
be sold at a foreclosure auction.” 
 
Plaintiff alleges that subsequent events corroborated his 
understanding of the letters.  First, sometime in March 2010, 
Wells Fargo called plaintiff’s wife.  According to plaintiff, 
“During this phone call, a Wells Fargo representative told Ms. 
Sheen that there would be no . . . foreclosure sale of Plaintiff’s 
home but that Wells Fargo would continue to attempt to collect 
money Plaintiff owed to Wells Fargo.”  Second, Wells Fargo sent 
plaintiff a letter offering to reduce by half the amount owing on 
the Second Loan if plaintiff would pay the entire amount.  
Because the letter “made no direct mention of a possible 
foreclosure sale and instead referred directly to the intervention 
of a collection agency in connection with the Second Loan,” it 
“further confirmed Plaintiff’s understanding that the Second 
Loan had been modified such that it was now unsecured.”  Third, 
five years after these communications — in November 2015 — 
Wells Fargo informed plaintiff that it had cancelled (discharged) 
the Third Loan.  Per the complaint, “The November 16, 2015 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
7 
letter . . . indicated to Plaintiff that . . . the Second Loan, like the 
Third Loan, had been modified in some way.”1 
 
In November 2010, Wells Fargo sold plaintiff’s Second 
Loan to another entity.  Specifically, it assigned away both its 
beneficial (ownership) interest and servicing rights.2  Plaintiff 
makes no further allegations of improper conduct by Wells 
Fargo after it sold the loan. 
In 2014, four years after Wells Fargo sold plaintiff’s 
Second Loan, the new owner of the loan — Mirabella  
Investment Group, LLC — foreclosed on the Property.  Plaintiff 
sued, naming both Mirabella and the entity servicing the loan 
at the time of foreclosure — FCI Lender Services, Inc. (FCI) — 
as defendants, along with Wells Fargo.  In addition to his 
 
1  
Wells Fargo had cancelled the Third Loan a year prior, in 
March of 2014, and informed plaintiff of the fact at that time.  It 
conveyed the same message again in 2015 “in response to a 
complaint Plaintiff had submitted to the Consumer Financial 
Protection Bureau.”  Plaintiff offers no explanation concerning 
how a letter that was sent after plaintiff’s house was foreclosed 
upon (see post) corroborated his belief that both the Second and 
Third Loans had become unsecured. 
2  
The entity holding the servicing rights to a mortgage loan 
is known as a servicer.  A servicer is “responsible for account 
maintenance activities such as sending monthly statements to 
mortgagors, collecting payments from mortgagors, keeping 
track of account balances, handling escrow accounts, calculating 
interest-rate 
adjustments 
on 
adjustable-rate 
mortgages, 
reporting to national credit bureaus, and remitting funds 
collected from mortgagors to the [owners of the beneficial 
interest in the loans].”  (Levitin & Twomey, Mortgage Servicing 
(2011) 28 Yale J. on Reg. 1, 23 (Levitin).)  “Servicers also are 
responsible for handling defaulted loans, including prosecuting 
foreclosures and attempting to mitigate investors’ losses.”  
(Ibid.) 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
8 
negligence claims, plaintiff advanced causes of action for 
promissory estoppel (against Mirabella and FCI), intentional 
infliction of emotional distress, and violation of the unfair 
competition law (Bus. & Prof. Code, § 17200 et seq.). 
 
Defendants demurred.  The trial court sustained Wells 
Fargo’s demurrer to plaintiff’s negligence claim, finding that 
there was no duty on the part of the bank to “respond timely to 
[plaintiff’s] request to modify the second trust deed.” 
The Court of Appeal affirmed.  The court concluded that 
the relevant authorities “decisively weigh against extending tort 
duties into mortgage modification negotiations.”  (Sheen, supra, 
38 Cal.App.5th at p. 348.)  It found instructive the position taken 
by other states and the fact that “the most recent Restatement 
counsels against this extension because other bodies of law — 
breach of contract, negligent misrepresentation, promissory 
estoppel, fraud, and so forth — are better suited to handle 
contract negotiation issues.”  (Ibid.) 
 
We granted review. 
II.  DISCUSSION 
As previously explained, the specific question we address 
in this case is whether Wells Fargo owes plaintiff a duty “to 
process, review and respond carefully and completely to [his] 
loan modification applications” so as to avoid causing plaintiff 
pure monetary loss through a lack of care in handling his 
applications.  Plaintiff does not point to any specific language in 
his contract — which evidently contains no provisions obligating 
Wells Fargo to review or respond to plaintiff’s modification 
application — as the source of this duty.  Instead, he claims that 
the duty arises as a matter of law when a borrower submits a 
loan modification application to a lender, and that a lender’s 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
9 
failure “to process, review and respond carefully and completely” 
to the application is actionable in tort. 
Whether such a tort duty exists is an issue upon which the 
Courts of Appeal are divided.  (Compare Sheen, supra, 
38 Cal.App.5th at p. 358, and Lueras v. BAC Home Loans 
Servicing, LP (2013) 221 Cal.App.4th 49, 68 (Lueras) 
[concluding that the defendants “did not have a common law 
duty of care to offer, consider, or approve a loan modification”] 
with Weimer v. Nationstar Mortgage, LLC (2020) 47 Cal.App.5th 
341, 347–348 (Weimer) [recognizing a duty of care in handling a 
loan modification application]; Rossetta v. CitiMortgage, Inc. 
(2017) 18 Cal.App.5th 628, 641 (Rossetta) [same, at least when 
the lender allegedly is “making default a condition of being 
considered for a loan modification”]; Daniels v. Select Portfolio 
Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1183 (Daniels) 
[recognizing a duty of care]; Alvarez v. BAC Home Loans 
Servicing, L.P. (2014) 228 Cal.App.4th 941, 944, 948  (Alvarez) 
[recognizing a duty owed by the defendant financial institutions 
to “exercise reasonable care in the review of [the borrower’s] loan 
modification applications” when the “defendants allegedly 
agreed to consider modification of the plaintiffs’ loans”]; see also, 
e.g., Hernandez v. Select Portfolio Servicing, Inc. (C.D.Cal., June 
25, 2015, No. CV 15-01896 MMM (AJWx)) 2015 U.S.Dist. Lexis 
82922, pp. *54–*56 [documenting a similar split within the 
federal district courts applying California law]; see also Jolley v. 
Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 901–906 
(Jolley) [in a construction loan appeal, court expressed in dicta 
skepticism regarding “a no-duty rule” within the home 
residential lending context].) 
“Duty is not universal; not every defendant owes every 
plaintiff a duty of care.  A duty exists only if ‘ “the plaintiff’s 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
10 
interests are entitled to legal protection against the defendant’s 
conduct.” ’  [Citation.]  Whether a duty exists is a question of law 
to be resolved by the court.”  (Brown v. USA Taekwondo (2021) 
11 Cal.5th 204, 213 (Brown).)  “A duty of care may arise through 
statute” or by operation of the common law.  (J’Aire Corp. v. 
Gregory (1979) 24 Cal.3d 799, 803 (J’Aire).)  Below, we consider 
whether either of these sources of law recognizes a duty “to 
process, review and respond carefully and completely to . . . loan 
modification applications” as urged by plaintiff. 
A.  Statutory Law 
Plaintiff does not identify any statute or regulation that 
requires Wells Fargo to treat his modification applications with 
due care.  Plaintiff does not rely on the language of Civil Code 
section 1714, which sets out the “ ‘general rule’ governing duty” 
(Brown, supra, 11 Cal.5th at p. 213), as establishing this duty.  
Despite its broad language, section 1714 does not impose a 
general duty to avoid purely economic losses.  In relevant part, 
that provision states, “Everyone is responsible, not only for the 
result of his or her willful acts, but also for an injury occasioned 
to another by his or her want of ordinary care or skill in the 
management of his or her property or person . . . .”  (Civ. Code, 
§ 1714, subd. (a).)  As we have recently explained, “liability in 
negligence for purely economic losses . . . is ‘the exception, not 
the rule,’ under our precedents.  [Citation.]  And that holds true 
even though Civil Code section 1714 does not, by its terms, 
‘distinguish among injuries to one’s person, one’s property or 
one’s financial interests.’ ”  (Gas Leak Cases, supra, 7 Cal.5th at 
p. 400 [so observing in the context of local businesses’ suit for 
damages reflecting the income lost due to the defendant’s 
alleged negligence in allowing a massive gas leak to occur, 
driving away the businesses’ customers]; see also id. at p. 399 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
11 
[“What Civil Code section 1714 does not do is impose a 
presumptive duty of care to guard against any conceivable harm 
that a negligent act might cause”]; accord, Quelimane Co. v. 
Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 58 
(Quelimane).) 
Nor does plaintiff identify any other statute or regulation 
as imposing the duty he asks us to recognize.  He does not 
ground such a duty in the extensive body of state and federal 
legislation and regulations that address mortgage servicing and, 
more specifically, the process mortgage servicers must follow 
with regard to handling modification applications, including the 
California Homeowner Bill of Rights (HBOR).  (Civ. Code, 
§ 2923.4 et seq.)  As Wells Fargo points out, “where they apply,” 
HBOR and complementary federal legislation specify various 
affirmative actions a servicer is obligated to take when receiving 
modification applications.  For example, HBOR specifies that 
upon receiving certain modification applications, “the mortgage 
servicer shall provide written acknowledgment of the receipt of 
the documentation” and must include in that acknowledgement 
“an estimate of when a decision on the loan modification will be 
made,” “deadlines to submit missing documentation,” “[a]ny 
expiration dates for submitted documents,” and “[a]ny 
deficiency in the . . . modification application.”  (Civ. Code, 
§ 2924.10, 
subd. 
(a)(1)–(4); 
see 
also 
12 
C.F.R. 
§ 1024.41(b)(2)(i)(B), (c)(3) (2013).)  In addition, the servicer is 
required to apprise the borrower of any foreclosure prevention 
alternative it offers before foreclosing, cannot foreclose while a 
modification application is pending (Civ. Code, §§ 2924.9, subd. 
(a), 2923.6, subd. (c)), and must give “written notice to the 
borrower identifying the reasons” for denying an application if 
it does so (Civ. Code, § 2923.6, subd. (f)). 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
12 
Yet neither HBOR nor any other state or federal statute 
or regulation applies here to impose a duty along the lines 
sketched by plaintiff.  By its plain terms, HBOR’s provisions 
apply only to first lien mortgages.  (See Civ. Code, § 2924.15, 
subd. (a) [“Unless otherwise provided, paragraph (5) of 
subdivision (a) of Section 2924, and Sections 2923.5, 2923.55, 
2923.6, 2923.7, 2924.9, 2924.10, 2924.11, and 2924.18 shall 
apply only to a first lien mortgage or deed of trust that meets 
either of the following criteria”]; see also, e.g., Civ. Code, 
§ 2924.10, subd. (a) [specifying requirements applicable “[w]hen 
a borrower submits a complete first lien modification application 
or any document in connection with a first lien modification 
application”].)  Because the loans at issue in this case were 
junior loans — the second and third loans that plaintiff secured 
using the Property as collateral — HBOR does not apply.  
Likewise, plaintiff does not bring a claim under any other state 
or federal law governing mortgage loan modifications, such as 
the California Foreclosure Prevention Act (Civ. Code, § 2924 et 
seq.), the Real Estate Settlement Procedures Act (12 U.S.C. 
§ 2601 et seq.), or the Home Affordable Modification Program 
(12 U.S.C. § 5201 et seq.).  Plaintiff has determined that these 
laws “did not or could not offer him the type of relief he wanted” 
(Sheen, supra, 38 Cal.App.5th at p. 352), and we have no reason 
to revisit this assessment. 
B.  Common Law 
Rather than focusing on any statute, plaintiff grounds his 
negligence claim in the common law.  We conclude that this 
effort fails in light of the economic loss rule.  Nor can a duty to 
“process, review, and respond carefully and completely to 
Plaintiff’s loan modification applications” be justified by 
reference to the Biakanja factors.  Those factors are commonly 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
13 
employed to ascertain whether a court should recognize a duty, 
but are useful and appropriate for that purpose only in 
situations involving parties that are not in privity with one 
another.  Finally, the policy justifications plaintiff advances for 
the recognition of a duty are unpersuasive — and in any event, 
the policy considerations implicated here are better left to the 
Legislature. 
1.  Economic Loss Rule 
We begin with a review of the contours of the economic loss 
rule.  The rule itself is deceptively easy to state:  In general, 
there is no recovery in tort for negligently inflicted “purely 
economic losses,” meaning financial harm unaccompanied by 
physical or property damage.  (Gas Leak Cases, supra, 7 Cal.5th 
at p. 400; see also Aas, supra, 24 Cal.4th at p. 636 [“In actions 
for negligence, a manufacturer’s liability is limited to damages 
for physical injuries; no recovery is allowed for economic loss 
alone.  [Citation.]  This general principle [is] the so-called 
economic loss rule”]; Seely v. White Motor Co. (1965) 63 Cal.2d 
9, 18 (Seely) [similar]; Rest., § 1 [“An actor has no general duty 
to avoid the unintentional infliction of economic loss on 
another”].) 
The economic loss rule has been applied in various 
contexts.  First, it carries force when courts are concerned about 
imposing “ ‘liability in an indeterminate amount for an 
indeterminate time to an indeterminate class.’ ”  (Gas Leak 
Cases, supra, 7 Cal.5th at p. 414, quoting Ultramares Corp. v. 
Touche (N.Y. 1931) 174 N.E. 441, 444.)   
In another recurring set of circumstances, the rule 
functions to bar claims in negligence for pure economic losses in 
deference to a contract between litigating parties.  (See 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
14 
Robinson, supra, 34 Cal.4th at p. 988 [“Quite simply, the 
economic loss rule ‘prevent[s] the law of contract and the law of 
tort from dissolving one into the other’ ”]; Aas, supra, 24 Cal.4th 
at pp. 635–636; accord, Erlich v. Menezes (1999) 21 Cal.4th 543, 
550–551 (Erlich); Bily v. Arthur Young & Co. (1992) 3 Cal.4th 
370, 398 (Bily); Foley v. Interactive Data Corp. (1988) 47 Cal.3d 
654, 683 (Foley).)  Regarding this latter branch of the doctrine, 
one scholar has stated, “Using contract law to govern 
commercial transactions lets parties and their lawyers know 
where they stand and what they can expect to follow legally from 
the words they have written.  But if a disappointed buyer has 
the option of abandoning the contract and suing in tort, the 
significance of the contract is diminished and the doctrines that 
protect the integrity of the contractual process are reduced in 
importance.  Parties wrangle over integration clauses to make 
clear that their obligations are the ones stated in the contract 
and nothing else; the point of bothering about such matters 
becomes unclear if a disappointed party can later invoke an 
outside set of obligations that are imposed on the promisor and 
defined by the law of tort.”  (Farnsworth, The Economic Loss 
Rule (2016) 50 Val.U. L.Rev. 545, 553–554 (Farnsworth).)  The 
Restatement states this form of the economic loss rule thusly:  
“[T]here is no liability in tort for economic loss caused by 
negligence in the performance or negotiation of a contract 
between the parties.”  (Rest., § 3.) 
Because it involves parties who are in contractual privity, 
this strand of the economic loss rule is sometimes referred to as 
the “contractual economic loss rule,” “contractual rule,” or 
“consensual paradigm.”  (See, e.g., Sharkey, In Search of the 
Cheapest Cost Avoider:  Another View of the Economic Loss Rule 
(2018) 85 U.Cin. L.Rev. 1017, 1018–1019 (Sharkey); Dobbs, An 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
15 
Introduction to Non-Statutory Economic Loss Claims (2006) 
48 Ariz. L.Rev. 713, 714.)  The Restatement offers an 
illuminating explanation of this form of the economic loss rule.  
According to the Restatement, the principle that “there is no 
liability in tort for economic loss caused by negligence in the 
performance or negotiation of a contract between the parties” 
(Rest., § 3 at p. 2) “serves several purposes.”  (Id., com. b., p. 3.)  
For one, it “protects the bargain the parties have made against 
disruption by a tort suit.”  (Ibid.)  For another, “the rule allows 
parties to make dependable allocations of financial risk without 
fear that tort law will be used to undo them later.”  (Ibid.)  
“Viewed in the long run,” therefore, “the rule prevents the 
erosion of contract doctrines by the use of tort law to work 
around them.”  (Ibid.) 
Not all tort claims for monetary losses between 
contractual parties are barred by the economic loss rule.  But 
such claims are barred when they arise from — or are not 
independent of — the parties’ underlying contracts.  (See 
Robinson, supra, 34 Cal.4th at p. 991 [holding that “the 
economic loss rule does not bar [the plaintiff’s] fraud and 
intentional misrepresentation claims because they were 
independent of [the defendant’s] breach of contract”]; Erlich, 
supra, 21 Cal.4th at pp. 551, 552 [explaining that “[t]ort 
damages have been permitted in contract cases” when “the duty 
that gives rise to tort liability is either completely independent 
of the contract or arises from conduct which is both intentional 
and intended to harm”].)  Plaintiff’s claim here arises from, and 
is not independent of, the mortgage contract. 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
16 
a.  The Economic Loss Rule Bars Plaintiff’s 
Negligence Claim 
Plaintiff and Wells Fargo had a contract.  Plaintiff’s 
complaint alleges that he “obtained a second-lien residential 
mortgage from Wells Fargo” that was “secured by the Property 
pursuant to a deed of trust.”3  Plaintiff thus had an agreement 
with Wells Fargo that specified the parties’ rights and 
obligations with respect to the mortgage loan and the collateral 
securing the loan.  In particular, the fact that the mortgage was 
“secured by the Property pursuant to a deed of trust” (impliedly 
with the power of sale) means the parties agreed that Wells 
Fargo would have the right to seize and sell the property in 
satisfaction of the debt should plaintiff stop making payments 
on the loan.  (See, e.g., Trustors Security Service v. Title Recon 
Tracking Service (1996) 49 Cal.App.4th 592, 595; 5 Miller & 
Starr, Cal. Real Estate (4th ed.) Deeds of Trusts and Mortgages, 
§ 13.1, p. 13-16.)  These were the terms of the parties’ 
agreement. 
Plaintiff and Wells Fargo did not agree that should 
plaintiff default and attempt to renegotiate his loan by 
submitting a modification application, Wells Fargo would 
“process, review and respond carefully and completely to the . . . 
applications Plaintiff submitted,” and could foreclose only after 
discharging such obligations.4  (Accord, Copeland, supra, 96 
 
3  
Plaintiff makes similar allegations with respect to the 
Third Loan, but we focus here on the Second Loan because the 
Third Loan ultimately was discharged. 
4  
Plaintiff’s briefs at times appear to argue that even if 
Wells Fargo had no initial obligation to handle the requested 
loan modifications with due care, such an obligation arose once 
 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
17 
Cal.App.4th at pp. 1257–1259 [discussing and upholding the 
validity of a contract to negotiate, or an agreement to negotiate 
the terms of a future contract].)5  To impose a tort duty in such 
 
Wells Fargo “agree[d] to consider a modification of an 
applicant’s loan.” 
Plaintiff’s complaint, however, is devoid of any allegation 
that Wells Fargo actually agreed to consider his applications.  
Plaintiff’s pleading merely alleges that he submitted the 
applications and then did not receive a response or a “written 
determination” from Wells Fargo.  These allegations do not give 
rise to a reasonable inference that Wells Fargo agreed to 
“consider a modification of [the] applicant’s loan.” 
Furthermore, even if Wells Fargo did accept the 
applications for consideration, it is unclear why mere acceptance 
of the applications would give rise to a tort duty to “process, 
review, and respond carefully and completely to the loan 
modification applications.”  As the Restatement makes clear, 
even when parties are actively negotiating a contract, “there is 
no liability in tort for economic loss caused by negligence” during 
such negotiations.  (Rest., § 3; see also id., com. b., p. 2; accord, 
Copeland v. Baskin Robbins U.S.A. (2002) 96 Cal.App.4th 1251, 
1260 (Copeland) [“When two parties, under no compulsion to do 
so, engage in negotiations to form or modify a contract neither 
party has any obligation to continue negotiating or to negotiate 
in good faith.  Only when the parties are under a contractual 
compulsion to negotiate does the covenant of good faith and fair 
dealing attach”]; Racine & Laramie, Ltd. v. Department of Parks 
& Recreation (1992) 11 Cal.App.4th 1026, 1031 [explaining that, 
absent an express agreement to the contrary, a defendant had 
no contractual obligation to “negotiate new terms of the 
concession contract, [and] that its commencement and 
continuance of negotiations over a long period of time had no 
effect upon this lack of obligation”].) 
5  
In part II.B.2.b, post, we address the Attorney General’s 
argument that due to imperfect rationality, understanding, or 
attention, a borrower is unlikely to bargain regarding terms that 
 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
18 
circumstances would go further than creating obligations 
unnegotiated or agreed to by the parties; it would dictate terms 
that are contrary to the parties’ allocation of rights and 
responsibilities.  The proposed duty would impede Wells Fargo’s 
right to foreclose by permitting foreclosure only after Wells 
Fargo discharges a tort duty to “process, review and respond 
carefully and completely to [a borrower’s] loan modification 
application[s].” 
Put differently, plaintiff’s claim here is not independent of 
the original mortgage contract, not because his claim merely 
relates to the subject of that agreement, but because it is based 
on an asserted duty that is contrary to the rights and obligations 
clearly expressed in the loan contract.  If we are to give deference 
to the parties’ agreement — and more generally to accord 
respect to contract doctrines — we cannot sustain a tort duty in 
such circumstances.  (Accord, e.g., Robinson, supra, 34 Cal.4th 
at pp. 992–993 [“ ‘ “[W]hen two parties make a contract, they 
agree upon the rules and regulations which will govern their 
relationship; the risks inherent in the agreement and the 
likelihood of its breach. . . .  Under such a scenario, it is 
appropriate to enforce only such obligations as each party 
 
would become relevant only in the event the borrower needed to 
modify a loan.  We note, however, that this is different from an 
argument that a borrower could not as a matter of law have 
negotiated over such terms.  As the Copeland court explained, 
there is “no reason why in principle the parties could not enter 
into a valid, enforceable contract to negotiate the terms” of 
contract that is neither “illegal [n]or immoral.”  (Copeland, 
supra, 96 Cal.App.4th at p. 1257.)  A mortgage contract is 
obviously legal, as are modifications of such contracts. 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
19 
voluntarily assumed, and to give him only such benefits as he 
expected to receive; this is the function of contract law” ’ ”].) 
b.  Opinions from Other Jurisdictions Support the 
Approach We Adopt Today 
The application of the economic loss rule to bar plaintiff’s 
asserted tort claim is consistent with well-reasoned decisions 
from other federal and state courts, including the views of other 
state supreme courts that have addressed the issue before us. 
In Wigod v. Wells Fargo Bank, N.A. (7th Cir. 2012) 673 
F.3d 547, 558 (Wigod), the plaintiff homeowner applied to 
modify her mortgage loan.  The defendant bank “determine[d] 
that Wigod was eligible” for modification under the federal 
Home Affordable Mortgage Program (HAMP) and sent her an 
agreement known as a Trial Period Plan (TPP).  (Ibid.)  When 
the bank ultimately failed to offer Wigod a loan modification, 
Wigod sued in contract and in tort.  The circuit court, applying 
Illinois law, held that Wigod had stated a valid breach of 
contract claim under the TPP.6 
The court rejected Wigod’s negligence claim, however, 
concluding that it was foreclosed by the economic loss rule.  
(Wigod, supra, 673 F.3d at pp. 555, 567.)  Wigod had argued that 
the bank had a duty to hire qualified customer service 
employees and train them to implement HAMP effectively.  (See 
 
6  
In part II.B.1.e., post, we discuss the significance — or 
lack thereof — of whether plaintiff has a viable contract claim 
against Wells Fargo.  Here, we note that Wigod’s contract cause 
of action was based on an asserted breach of the TPP, and not of 
the original mortgage agreement.  (Wigod, supra, 673 F.3d at 
pp. 558–561.) With regard to the original mortgage contract, 
therefore, Wigod’s position was not materially different from 
plaintiff’s. 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
20 
Wigod, at p. 567.)  The court disagreed, explaining that “[t]o the 
extent Wells Fargo had a duty to service Wigod’s loan 
responsibly and with competent personnel, that duty emerged 
solely out of its contractual obligations.”  (Id. at p. 568.)  “Wigod’s 
rights,” continued the court, “are contractual in nature.  If [the 
defendant bank] failed to honor their agreement — whether by 
hiring incompetents or simply through bald refusals to 
perform — contract law provides her remedies.”  (Ibid.)  That 
contract itself, the court continued, “ ‘cannot give rise to an 
extra-contractual duty without some showing of a fiduciary 
relationship between the parties,’ and no such relationship 
existed here.”  (Ibid.)  Because Wigod had alleged only economic 
injury and the bank’s duty did not exist “independent of the 
contract,” Wigod’s negligence claim was barred by the economic 
loss rule.  (Id. at p. 567.) 
The Supreme Court of Connecticut has similarly declined 
to “recognize a common-law duty requiring a loan servicer to use 
reasonable care in the review and processing of a mortgagor’s 
loan modification applications.”  (Cenatiempo v. Bank of 
America, N.A. (Conn. 2019) 219 A.3d 767, 791 (Cenatiempo).)  
The court’s analysis began with the premise that “the law does 
not impose a duty on lenders to use reasonable care in its 
commercial 
transactions 
with 
borrowers 
because 
the 
relationship between lenders and borrowers is contractual and 
loan transactions are conducted at arm’s length.”  (Id. at p. 792.)  
It then reasoned there was no “ ‘strong showing of policy 
reasons’ ” to warrant different treatment of “a relationship 
between an investor’s loan servicer and a mortgagor [due to] the 
former’s review and processing of a loan modification 
application.”  (Id. at pp. 795, 793.)  Accordingly, the court 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
21 
concluded the servicer owed no “common-law duty of care to the 
plaintiff[] [borrowers].”  (Id. at p. 795.) 
Likewise, in House v. U.S. Bank Nat. Association (Mont. 
2021) 481 P.3d 820, 828, the Montana Supreme Court reiterated 
that “[u]nless otherwise provided by contract, a lender generally 
has no duty to modify, renegotiate, waive, or forego enforcement 
of the terms of a mortgage loan in order to assist a borrower to 
avoid a default or foreclosure.”  Therefore, “[a]lleged errors or 
omissions by a lender in the servicing or administration of a 
mortgage loan [are] . . . generally compensable only in 
contract . . . .”  (Ibid.; see also Flagstaff Housing v. Design 
Alliance (Ariz. 2010) 223 P.3d 664, 670 [stating that in the 
construction defect context “if the parties do not provide 
otherwise in their contract, they will be limited to contractual 
remedies” for pure economic loss].)  The Montana high court did 
note that “if the lender gives extraordinary advice . . . beyond 
that customary in arms-length lending and loan servicing 
transactions,” such “extraordinary circumstances . . . may . . . 
independently give rise to a special common law fiduciary duty 
of care.”  (House, at pp. 828–829; see also id. at p. 829 [“However, 
. . . merely offering, administering, or providing general 
information regarding program eligibility, requirements, or 
process for a distressed loan modification . . . is insufficient 
alone to give rise to a special fiduciary relationship or duty 
between a lender and borrower”].)  As we explain below, such a 
rule — which may be restated as “a lender owes no duty of care 
to a borrower when the lender’s involvement in the loan 
transaction does not exceed its customary role in arms-length 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
22 
lending and servicing” — is consistent with  case law from our 
Courts of Appeal.7 
c.  Our Courts of Appeal Have Recognized the 
Economic Loss Rule Within the Lender-
Borrower Context 
Our rejection of plaintiff’s arguments as incompatible with 
the economic loss rule also harmonizes with a well-established 
principle of state law commonly attributed to Nymark v. Heart 
Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089 
(Nymark).  In Nymark, the court stated a “general rule” 
precluding certain tort claims in the lender-borrower context:  
“[A] financial institution owes no duty of care to a borrower 
when the institution’s involvement in the loan transaction does 
not exceed the scope of its conventional role as a mere lender of 
money.”  (Id. at p. 1096.)  We understand this general principle 
(which is distinct from Nymark’s additional assessment that 
Biakanja “support[ed] [its] conclusion that [the] defendant did 
not owe a duty of care to [the] plaintiff” (Nymark, at p. 1099)) as 
a refinement of the contractual economic loss rule in the lender-
borrower context, which asks in the first instance whether the 
alleged negligence occurred within the scope of the parties’ 
contractual relationship.  In the time since Nymark articulated 
this rule, it has been uniformly accepted among our Courts of 
Appeal, even by those that have held financial institutions owe 
 
7  
In contrast to the above views, plaintiff points to no state 
supreme court that has embraced the duty he now urges upon 
us.  Although a minority few opinions by state intermediate 
courts may have recognized a duty within the loan modification 
context (see, e.g., Sheen supra, 38 Cal.App.5th at pp. 355–356 
[collecting out-of-state and federal cases]), we regard those 
decisions declining to do so as more persuasive. 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
23 
their borrowers a duty of care in the loan modification context.  
(See Weimer, supra, 47 Cal.App.5th at pp. 355–356; Rossetta, 
supra, 18 Cal.App.5th at p. 637; Daniels, supra, 246 Cal.App.4th 
at pp. 1180–1182; Alvarez, supra, 228 Cal.App.4th at pp. 945–
946; accord, Jolley, supra, 213 Cal.App.4th at p. 898.) 
None of these courts, however, have regarded the general 
rule stated in Nymark, supra, 231 Cal.App.3d 1089 as 
compelling in the loan modification context, concluding instead 
that Biajanka sets the appropriate standard to determine 
whether a duty of care exists in this setting.  (See Weimer, supra, 
47 Cal.App.5th at pp. 355–356; Rossetta, supra, 18 Cal.App.5th 
at p. 637; Daniels, supra, 246 Cal.App.4th at pp. 1180–1182; 
Alvarez, supra, 228 Cal.App.4th at pp. 945–946, 948; Jolley, 
supra, 213 Cal.App.4th at pp. 899–902.)  We shall turn to 
Biakanja and its application below.  For now, we note that the 
Nymark general rule ordinarily applies “when the institution’s 
involvement in the loan transaction does not exceed the scope of 
its conventional role as a mere lender of money.”  (Nymark, 
supra, 231 Cal.App.3d at p. 1096.)   
Plaintiff maintains that the affirmative duty to act — to 
process, review, and respond to the loan modification 
applications — is outside Nymark’s reach because that 
decision’s holding “is limited to the loan origination context.”  
Yet, plaintiff evades the central question relevant to the 
applicability of Nymark’s general principle:  whether the 
handling of a loan modification application is within the scope 
of Wells Fargo’s role as a lender.  We believe it is.  A lender’s 
handling of a modification application is part of a process by 
which the lender decides whether it should adhere to the 
existing contract or offer a new agreement (and if so, under what 
terms).  It is a step in the lender’s determination concerning how 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
24 
best to collect the money it had dispersed under the loan, 
whether that be by foreclosing (seizing and selling the collateral 
to pay back the loan) or offering new terms that are less 
favorable to the lender than the original contract but that 
potentially improve the odds of the borrower paying.  In short, a 
lender’s involvement in the loan modification process — 
specifically whether it “process[es], review[s] and respond[s] 
carefully and completely to the loan modification applications [a 
borrower] submitted” — is part and parcel of its assessment 
regarding how best to recoup the money it is owed. 
Such involvement, without more, does not “exceed the 
scope of [an institution’s] conventional role as a mere lender of 
money.”  (Nymark, supra, 231 Cal.App.3d at p. 1096; see Lueras, 
supra, 221 Cal.App.4th at p. 67 [“a loan modification is the 
renegotiation of loan terms, which falls squarely within the 
scope of a lending institution’s conventional role as a lender of 
money”]; Armstrong v. Chevy Chase Bank, FSB (N.D.Cal., Oct. 
3, 2012, No. 5:11-cv-05664 EJD) 2012 U.S.Dist. Lexis 144125, 
pp. *11–*12 [“a loan modification . . . is nothing more than a 
renegotiation of loan terms. . . .  Outside of actually lending 
money, it is undebatable that negotiating the terms of the 
lending relationship is one of the key functions of a money 
lender.  For this reason, ‘[n]umerous cases have characterized a 
loan modification as a traditional money lending activity’ ”]; 
Carbajal v. Wells Fargo Bank, N.A. (C.D.Cal., Apr. 10, 2015, No. 
CV 14-7851 PSG (PLAx)) 2015 U.S.Dist. Lexis 47918, p. *13 [“In 
a modification application mishandling case, there is no ‘active 
participation’ in the borrower’s financed enterprise that 
demonstrates that the lender is acting outside the scope of 
conventional arms-length lending activity”].)  In sum, although 
“ ‘ “Nymark does not support the sweeping conclusion that a 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
25 
lender never owes a duty of care to a borrower” ’ ” (e.g., Rossetta, 
supra, 18 Cal.App.5th at p. 637), it does support the conclusion 
that a lender owes no duty to a borrower in its processing of a 
loan modification application. 
d.  Cases Not Applying the Economic Loss Rule 
Are Inapposite 
It is true that we have, in certain contexts, allowed tort 
actions to proceed even though they arise from, and are not 
independent of, a contract, despite the economic loss rule.  
Specifically, we have allowed for tort recovery in some cases 
involving insurance policies and contracts for professional 
services.  (See, e.g., Jonathan Neil & Assoc., Inc. v. Jones (2004) 
33 Cal.4th 917, 923 (Jonathan Neil) [“The remedy for breach of 
[the implied] covenant [of good faith and fair dealing] is 
generally limited to contract damages, but we have recognized 
an exception to this rule when the breach occurs in the context 
of an insurance company’s failure to properly settle a claim 
against an insured, or to resolve a claim asserted by the 
insured”]; Neel v. Magana, Olney, Levy, Cathcart & Gelfand 
(1971) 6 Cal.3d 176, 180–181 (Neel) [“Legal malpractice” “gives 
rise to an action in tort”].)  But there are good reasons for 
treating modification negotiations between mortgage lenders 
and borrowers differently. 
(i)  Mortgage lending and modification do not 
share the special characteristics associated 
with contexts exempted from the reach of the 
economic loss rule 
As we have recognized, “[t]he insurance cases . . . were a 
major departure from traditional principles of contract law.”  
(Foley, supra, 47 Cal.3d at p. 690; see also Cates Construction, 
Inc. v. Talbot Partners (1999) 21 Cal.4th 28, 43 (Cates 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
26 
Construction).)  We therefore must “consider with great care 
claims that extension of the exceptional approach taken in those 
cases is automatically appropriate if certain hallmarks and 
similarities can be adduced in another contract setting.”  (Foley, 
at p. 690.)  Exercising the necessary care, we have rejected 
arguments that employment contracts, performance bonds, or 
even “an insurance company’s breach of the covenant [of good 
faith and fair dealing] when it retroactively overcharges a 
premium it knows is not owed” are sufficiently analogous to the 
core insurance cases to warrant extension of tort remedies into 
those areas.  (Jonathan Neil, supra, 33 Cal.4th at p. 923; see also 
Foley, at p. 693 [concluding that “the employment relationship 
is not sufficiently similar to that of insurer and insured to 
warrant judicial extension of the proposed additional tort 
remedies”]; Cates Construction, at p. 60 [holding that tort 
recovery is inappropriate “for a breach of the implied covenant 
of good faith and fair dealing in the context of a construction 
performance bond” because “a construction performance bond is 
not an insurance policy”].) 
We come to the same conclusion here regarding mortgage 
contracts and modification applications.  In examining the 
“particular characteristics” of insurance policies that justify the 
“exceptional approach” we have taken in the insurance setting 
(Cates Construction, supra, 21 Cal.4th at pp. 45, 46), we see that 
a number of those characteristics do not inhere in the mortgage 
modification context.  Within the insurance context, these 
special characteristics include the fact that “when an insurer in 
bad faith refuses to pay a claim or to accept a settlement offer 
within policy limits,” “the insured cannot turn to the 
marketplace to find another insurance company willing to pay 
for the loss already incurred.”  (Foley, supra, 47 Cal.3d at p. 692.)  
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
27 
Moreover, “insurance policies are not purchased for profit or 
advantage; rather, they are obtained for peace of mind and 
security in the event of an accident or other catastrophe” (Cates 
Construction, at p. 44), thus making the role of the insurance 
companies “with whom individuals contract specifically in order 
to obtain protection from potential specified economic harm” 
quasi-public in nature.  (Foley, at p. 692; see also Egan v. Mut. 
of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819 (Egan); Love v. Fire 
Ins. Exchange (1990) 221 Cal.App.3d 1136, 1148 (Love) 
[“Insurance contracts are unique in nature and purpose. . . .  
Because peace of mind and security are the principal benefits 
for the insured, the courts have imposed special obligations, 
consonant with these special purposes, seeking to encourage 
insurers promptly to process and pay claims”].)  In addition, “the 
insurer’s and insured’s interest are financially at odds,” because 
paying a claim directly harms an insurer’s bottom line.  (Foley, 
supra, 47 Cal.3d at p. 693.)  Because of these characteristics, the 
insurer and insured are said to be in a “special” or quasi-
fiduciary relationship.  (See, e.g., Egan, supra, 24 Cal.3d at 
p. 820; McCormick v. Sentinel Life Ins. Co. (1984) 153 
Cal.App.3d 1030, 1050 (McCormick) [“the considerations 
involved in imposing liability on an insurer for unreasonably 
and in bad faith denying coverage under a policy” include “the 
quasi-public nature of the insurance industry, the quasi-
fiduciary relationship between insurer and insured, and 
significantly, the purpose of purchasing insurance — ensuring 
that the insured will be protected against losses incident to a 
disability or other catastrophe”].) 
For present purposes, lenders are not akin to insurers 
when they contract with consumers for mortgage loans.  
Although in extending mortgage loans banks may be facilitating 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
28 
home ownership in a broad sense, they are not providing 
protection or insurance.  Mortgage loans (especially non-
purchase or junior loans like those at issue in this case) are not 
typically taken “for peace of mind and security in the event of an 
accident or other catastrophe” but for “profit or advantage” — 
the lender gets paid interest and the borrower gets access to 
money.  (Cates Construction, supra, 21 Cal.4th at p. 44.)  This 
difference means that as compared to the quasi-public nature of 
insurance, mortgage contracts more closely resemble “a typical 
commercial contract.”  (Foley, supra, 47 Cal.3d at p. 692; see also 
Voris v. Lampert (2019) 7 Cal.5th 1141, 1162 [rejecting a 
conversion claim for nonpayment of wages when the availability 
of such a claim would “transform a category of contract claims 
into torts, and pile additional measures of tort damages on top 
of statutory recovery”].) 
Given the mutual advantages of mortgage loans, lenders 
and borrowers are not “financially at odds” to the same degree 
as insurers and insureds.  (Foley, supra, 47 Cal.3d at p. 693.)  
Even within a modification context, the relationship between 
the borrower and lender is more analogous to that of an 
employee and employer.  Similar to how paying salary typically 
benefits both the worker being paid and the employer who gets 
work done (see Foley, at p. 693), a loan modification benefits 
both the borrower, who receives a lower payment obligation, and 
the lender, who receives repayment that may not otherwise be 
forthcoming.  True, not every modification application results in 
a successful modification, but the possibility of benefiting from 
the transaction means a lender normally has an incentive to 
engage in the negotiation.  As such, “there is less inherent 
relevant tension between the interests of [lenders and 
borrowers] than exists between that of insurers and insureds,” 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
29 
and “the need to place disincentives on [a lender’s] conduct in 
addition to those already imposed by law simply does not rise to 
the same level as that created by the conflicting interests at 
stake in the insurance context.”  (Ibid.) 
(ii)  Plaintiff’s claim is not similar to those in 
which tort recovery has been allowed 
despite the existence of a contract 
Even when tort relief is available within the insurance 
and professional service contexts, we have limited recovery to 
specific claims intended to ensure the consumer receives the 
benefits or services for which he or she has contracted.  It would 
therefore constitute a significant extension of the law to 
recognize a negligence claim in the mortgage modification 
context when, as here, the loan agreement does not specify that 
the lender must duly engage with the borrower’s attempt to 
renegotiate the contract. 
To elaborate, one rationale offered for recognizing tort 
claims in the insurance context is that insurers, who act as 
gatekeepers to a benefit owed to insureds, should not be allowed 
to use that power to unreasonably withhold those benefits.  (See 
Love, supra, 221 Cal.App.3d at pp. 1151–1153.)  This 
justification recognizes the vulnerability of the insured in 
receiving the benefits for which the insured has contracted.  In 
other words, we recognize the bad faith tort as a tool to 
effectuate the purpose of insurance contracts.  (See McCormick, 
supra, 153 Cal.App.3d at p. 1050.)  Fittingly, we have denied 
tort relief when insureds’ claims are not closely tied to this 
vulnerability.  (See Jonathan Neil, supra, 33 Cal.4th at p. 941 
[declining to extend tort recovery against excessive retroactive 
premium charges because the plaintiffs were “not in the same 
vulnerable position as those who suffer from the insurer’s bad 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
30 
faith claims and settlement practices [because] they were not 
denied the benefits of the insurance policy”].) 
As especially relevant here, lower courts have denied bad 
faith tort actions for processing delays in the insurance context 
when  benefits were not otherwise due to the insured.  (See Love, 
supra, 221 Cal.App.3d at p. 1152 [explaining that a processing 
delay was not “an independent ground for recovery of 
damages”].)  Yet, this is precisely the nature of plaintiff’s claim 
in the present case.  As discussed, plaintiff is seeking only a 
processing duty with regard to his loan modification 
applications.  He does not urge us to recognize a duty to process, 
review and respond carefully and completely to his loan 
modification application in order to secure the benefit of a 
bargained-for provision of his loan agreement.  He pursues such 
a duty as an extra-contractual obligation, all the while 
conceding that his agreement with Wells Fargo confers upon 
him no right to receive either a loan modification or a specific 
standard of care in the handling of any modification application.  
It does not appear that courts have recognized this sort of 
freestanding process-related duty, even in the insurance bad 
faith context.  To permit tort recovery when it may not be 
available in the analogous insurance scenario would extend 
even  farther the “major departure from traditional principles of 
contract law” represented by the insurance cases.  (Foley, supra, 
47 Cal.3d at p. 690.) 
Similar considerations distinguish this case from the 
recognized exception to the economic loss rule for consumers 
who contract for certain kinds of professional services.  In that 
context, as in the insurance setting, a cause of action for 
negligence ensures that the consumer receives the services the 
professional agreed to provide.  In such settings, professionals 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
31 
generally agree to provide “careful efforts” in rendering 
contracted-for services, but “most clients do not know enough to 
protect themselves by inspecting the professional’s work or by 
other independent means.”  (Rest., § 4, com. a, p. 22; see also 
Neel, supra, 6 Cal.3d at p. 188.)  Given this disparity, a claim for 
professional negligence can serve the important purpose of 
ensuring that professionals render the “careful efforts” they 
have contracted to provide.  (Rest., § 4, com. a, p. 22.) 
In the present case, again, plaintiff is not simply asking to 
receive a benefit or service he has contracted for.  Instead, he 
seeks a duty that appears to cover everything the lender does 
during the pendency of a loan modification application — from 
how it manages paperwork to how clearly it communicates with 
borrowers — that would be difficult to adjudicate in any clear 
and consistent way across cases.  To recognize a duty of this 
indefiniteness and breadth seems out of step with our previous 
exceptions to the contractual economic loss rule, which permit 
much more cabined relief to ensure, in effect, that contracting 
parties get what they have contracted for. 
In sum, our precedents in the insurance and professional 
services field do not justify recognition of the duty pressed by 
plaintiff, which is both more expansive and less well justified 
than the limited duties answerable in negligence that have been 
imposed in other spheres. 
e.  Plaintiff’s Efforts to Distinguish Nymark and 
the Economic Loss Rule Are Unpersuasive 
Plaintiff advances two arguments why neither Nymark 
nor the economic loss rule applies in this case.  First, he asserts 
that because he is not claiming a breach of contract, the 
economic loss doctrine is inapplicable.  According to plaintiff, 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
32 
because Wells Fargo did not “breach its underlying loan 
agreements with [plaintiff],” his tort claim is not precluded by 
the economic loss rule.  Under plaintiff’s framing, the economic 
loss rule applies only when there is a breach of the underlying 
contract. 
The better view, however, is that there does not need to be 
a viable breach of contract claim for the economic loss rule to 
apply.  This is the view endorsed by the Restatement.  The 
Restatement recognizes that when a contract claim fails because 
of, say, the parol evidence rule or an integration clause, 
“[p]ressure to find a tort claim arises because the stakes are high 
and the plaintiff’s position is sympathetic.”  (Rest., § 3, com. d., 
p. 4.)  Yet, “[u]sing tort law to bypass [the parol evidence rule or 
other doctrines of contract law] weakens and retards their 
development.”  (Ibid.)  It also “interferes with the ability of 
others to make reliable agreements in the future.”  (Ibid.)  The 
better alternative, suggests the Restatement, is to “reconsider 
the application of the parol-evidence rule or other doctrines of 
contract law” or to look for statutory solutions that “impose 
responsibility on sellers for certain risks without distorting 
widely applicable legal principles to reach the desired outcome.”  
(Ibid.; see also Farnsworth, supra, 50 Val.U. L.Rev. at p. 558.) 
In this case, plaintiff has no viable contract claim against 
Wells Fargo because the mortgage contract between plaintiff 
and Wells Fargo did not obligate the bank to review or respond 
to plaintiff’s modification application as a precondition to 
foreclosure.  Plaintiff argues that recognition of a tort claim thus 
would not infringe on the parties’ bargain and so would not 
implicate the economic loss rule’s rationale of protecting private 
ordering.  Plaintiff’s premise fails.  Contrary to his assertion, 
permitting him to bring a tort claim on the theory that Wells 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
33 
Fargo owes him a duty to carefully process his modification 
applications would tend to “ ‘disrupt’ the bargain [Wells Fargo 
and plaintiff] made when they entered into the original loan 
agreement.”  Specifically, it would distort Wells Fargo’s 
bargained-for contractual right to foreclose by rendering 
foreclosure permissible only after Wells Fargo has discharged a 
tort duty to review, process, and respond to plaintiff’s 
modification application(s).  In other words, plaintiff’s tort 
claim — premised on a duty to “process, review, and respond 
carefully and completely” to a borrower’s modification 
application — is not “independent of the [underlying] contract 
arising from principles of tort law.”  (Erlich, supra, 21 Cal.4th 
at p. 551.)  Rather, because the imposition of such a duty would 
impede the bank’s contractual right to foreclose, plaintiff’s claim 
arises from the original mortgage contract. 
Plaintiff’s second argument concerning why the economic 
loss rule (and Nymark) do not apply in this case fares no better.  
His contention is that at the loan modification stage, borrowers 
are “captive,” meaning they “cannot choose who will service 
their loans” or handle their requested loan modifications.  
Moreover, plaintiff’s argument goes, borrowers depend “entirely 
on information from the servicer about whether the loan is likely 
to be modified, and on the status of the modification.”  Yet, at 
the point at which borrowers need to modify their loans, i.e., 
when they have either defaulted or are on verge of default, they 
are without the bargaining power to force servicers to provide 
the information or the level of service they need.  Moreover, 
servicers have their own incentives — for example, cost 
minimization — which may not align with those of borrowers.  
These factors, according to some courts, “provide a moral 
imperative that those with the controlling hand [i.e., the lender 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
34 
or servicer] be required to exercise reasonable care in their 
dealings with borrowers seeking a loan modification.”  (Alvarez, 
supra, 228 Cal.App.4th at p. 949; see also Weimer, supra, 47 
Cal.App.5th at pp. 362–363 [adopting Alvarez’s reasoning]; 
Rossetta, supra, 18 Cal.App.5th at p. 642 [same].)  
The difficulty with the argument is that the duties these 
courts have identified arise precisely because the parties are in 
a preexisting contractual relationship, one in which their 
agreement presumably outlined each party’s risks, benefits, and 
obligations to their mutual satisfaction at the time the contract 
was made.  The reason plaintiff is completely dependent on 
Wells Fargo is because Wells Fargo is his counterparty to the 
mortgage loan contract.  As such, only Wells Fargo has the 
power to release plaintiff from his existing contractual 
obligations on the loans plaintiff took from the bank.8  Having 
taken a loan from Wells Fargo, plaintiff is “ ‘captive,’ ” as he puts 
it, to the extent that he now cannot ask another bank or servicer 
to rewrite the terms of his contract with Wells Fargo.  (Alvarez, 
supra, 228 Cal.App.4th at p. 949 [quoting from an amicus curiae 
brief the argument that “ ‘borrowers are captive, with no choice 
of servicer’ ” and “ ‘cannot pick their servicers or fire them’ ”].)  
Similarly, plaintiff has no power “ ‘to hire [or] fire’ ” Wells Fargo 
after submitting his loan modification applications, because 
 
8  
To the extent Wells Fargo has assigned such rights to 
another entity by selling its beneficial interest or servicing right, 
thus giving the assignee the power to modify (or not) plaintiff’s 
loan terms, it is the mortgage contract itself that gives Wells 
Fargo the ability to do so.  In other words, plaintiff, by that 
contract, agreed that Wells Fargo was free to assign its interests 
thusly.  (See, e.g., Levitin, supra, 28 Yale J. on Reg. at p. 83 
[observing that “[f]ree assignability is a standard term” in 
mortgage loan contracts].) 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
35 
when he entered into a mortgage loan with Wells Fargo, he 
agreed to have it — or its choice of assignees — service the loan.9  
(Ibid.)  Having so agreed, plaintiff lacks the power to fire Wells 
Fargo in favor of another servicing entity.  In short, parties find 
themselves in this position because of the contract. 
None of this is to deny the difficulties borrowers face in the 
loan modification context.  One such difficulty is that, if 
borrowers have agreed that lenders may freely assign loans, 
borrowers are not thereafter entitled to choose if, when, to 
whom, and to what extent lenders may assign rights to those 
loans.  In particular, borrowers do not choose who may 
subsequently service their loans, and thus who will be the 
entities with which they will interact in any loan modification 
attempt.  (See, e.g., Alvarez, supra, 228 Cal.App.4th at p. 949.)  
To compound the problem, a borrower may face bargaining or 
information asymmetries in the loan modification process.  (See, 
e.g., Jolley, supra, 213 Cal.App.4th at p. 900 [in applying the 
Biakanja factors, asserting that the borrower’s “ability to 
protect his own interests in the loan modification process was 
practically nil”].) 
Yet, without denying the quandary of borrowers in 
distress, we see no sound basis for recognizing a tort duty 
limited to this situation.  Plaintiff’s rationale for bypassing the 
economic loss rule has no apparent endpoint.  Plaintiff does not 
articulate any persuasive basis for treating mortgage contracts 
(and particularly junior-lien loans) differently from various 
other types of agreements.  (Accord, Foley, supra, 47 Cal.3d at 
pp. 693, 696 [despite recognizing “[t]he potential effects on an 
 
9  
Plaintiff does not argue that the assignability provision 
contained in his contract was nonnegotiable. 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
36 
individual caused by termination of employment,” holding that 
“contractual remedies should remain the sole available relief for 
breaches of the implied covenant of good faith and fair dealing 
in the employment context”].  He has offered no guidance 
concerning how the modification attempts at issue are to be 
distinguished from, say, renegotiations of existing employment 
contracts.  (Accord, id. at p. 693.)  Regardless of the 
circumstances, whenever parties attempt to modify an existing 
contract, they cannot choose with whom to bargain, because the 
only persons with whom to negotiate are the signatories to the 
original contract (or their choice of assignees, if the contract 
permits reassignments).  Thus, to embrace plaintiff’s proposed 
duty would open the door to a potentially enormous expansion 
of tort law.  Plaintiff has not persuaded us to take such a leap. 
2.  Biakanja 
Plaintiff also argues that “[i]f the lower court had 
considered the Biakanja factors, it would have seen that they 
squarely point toward a duty of care in the mortgage servicing 
context.”  This argument presumes the multifactor approach 
articulated in Biakanja for ascertaining a duty of care applies in 
this context.  We conclude it does not. 
a.  Biakanja Does Not Apply Here 
We begin with Biakanja itself.  That case involved a will, 
through which the plaintiff’s brother sought to “bequeath[] all 
his property to [the] plaintiff.”  (Biakanja, supra, 49 Cal.2d at 
p. 648.)  But because the defendant notary public failed to have 
the will properly attested, the brother’s estate passed by 
intestate succession.  (Ibid.)  The plaintiff, upon receiving “only 
one-eighth of the estate,” sued to recover “the difference between 
the amount which she would have received had the will been 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
37 
valid and the amount distributed to her.”  (Ibid.)  “The principal 
question” raised by the case, we said, “is whether [the] 
defendant was under a duty to exercise due care to protect [the] 
plaintiff from injury and was liable for damage caused [the] 
plaintiff by his negligence even though they were not in privity 
of contract.”  (Ibid.)  After reviewing case law bearing on this 
question, we articulated the following rubric for resolving the 
issue:  “The determination whether in a specific case the 
defendant will be held liable to a third person not in privity is a 
matter of policy and involves the balancing of various factors, 
among which are the extent to which the transaction was 
intended to affect the plaintiff, the foreseeability of harm to him, 
the degree of certainty that the plaintiff suffered injury, the 
closeness of the connection between the defendant’s conduct and 
the injury suffered, the moral blame attached to the defendant’s 
conduct, and the policy of preventing future harm.”  (Id. at 
p. 650, italics added.) 
Biakanja itself thus makes clear that its multifactor test 
finds application only when the plaintiff is a “third person not 
in privity” with the defendant.  (Biakanja, supra, 49 Cal.2d at 
p. 650.)  Under its terms, Biakanja does not apply when the 
plaintiff and defendant are in contractual privity for purposes of 
the suit at hand.  (Cf. Brown, supra, 11 Cal.5th at p. 218 [in 
holding that the largely similar multifactor test set forth in 
Rowland v. Christian (1968) 69 Cal.2d 10 “serve[s] to determine 
whether an exception to [Civil Code] section 1714’s general duty 
of reasonable care is warranted,” observing that “Rowland itself 
referred to this multifactor test as a guide for determining 
whether to recognize an ‘exception’ to the general duty of care”].) 
This limitation makes sense, because as Wells Fargo 
explains, the Biakanja framework does “nothing to pinpoint 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
38 
whether imposing a general duty of care would upset the parties’ 
contractual expectations and ‘dissolv[e]’ the boundary between 
tort and contract.”  Put differently, Biakanja does not displace 
the contractual economic loss rule when that rule squarely 
applies.  (See Stop Loss Ins. Brokers, Inc. v. Brown & Toland 
Medical Group (2006) 143 Cal.App.4th 1036, 1042 [“Contrary to 
[the plaintiff’s] assumption, courts have not applied the 
Biakanja factors to create broad tort duties in arms-length 
business dealings whenever it is convenient to resort to the law 
of negligence”]; Body Jewelz, Inc. v. Valley Forge Ins. Co. 
(C.D.Cal. 2017) 241 F.Supp.3d 1084, 1093 (Body Jewelz); 
Elsayed v. Maserati N. Am., Inc. (C.D.Cal. 2016) 215 F. Supp.3d 
949, 963 (Elsayed); United Guar. Mortg. Indem. Co. v. 
Countrywide Fin. Corp. (C.D.Cal. 2009) 660 F.Supp.2d 1163, 
1180; City & Cty. of San Francisco v. Cambridge Integrated 
Servs. Grp., Inc. (N.D.Cal., Nov. 29, 2006, No. C 04-1523 VRW) 
2006 U.S.Dist. Lexis 103853, pp. *9–*12; Department of Water 
Los Angeles v. ABB Power T&D (C.D.Cal. 1995) 902 F.Supp. 
1178, 1189; see also Rest., § 1, com. c, p. 3.) 
Subsequent to Biakanja, we have repeatedly stated that 
its factors are used to determine whether persons must exercise 
reasonable care to avoid negligently causing economic loss to 
others with whom they were not in privity (sometimes referred 
to as third parties).  (See, e.g., Centinela Freeman Emergency 
Medical Associates v. Health Net of California, Inc. (2016) 
1 Cal.5th 994, 1013–1014 (Centinela) [“ ‘[r]ecognition of a duty 
to manage business affairs so as to prevent purely economic loss 
to third parties in their financial transactions is the exception, 
not the rule, in negligence law’ . . . .  The test for determining 
the existence of such an exceptional duty to third parties is set 
forth in the seminal case of Biakanja” (citation omitted)]; Aas, 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
39 
supra, 24 Cal.4th at pp. 643–644 [“In Biakanja, we held that a 
defendant’s negligent performance of a contractual obligation 
resulting in damage to the property or economic interests of a 
person not in privity could support recovery if the defendant was 
under a duty to protect those interests”]; Quelimane, supra, 19 
Cal.4th at p. 58 [discussing Biakanja in the context of “existence 
of a duty to third parties”]; Bily, supra, 3 Cal.4th at p. 397 [“We 
have employed a checklist of factors [laid out in Biakanja] to 
consider in assessing legal duty in the absence of privity of 
contract between a plaintiff and a defendant”]; J’Aire, supra, 24 
Cal.3d at p. 804 [“Where a special relationship exists between 
the parties, a plaintiff may recover for loss of expected economic 
advantage through the negligent performance of a contract 
although the parties were not in contractual privity.  Biakanja 
. . . [so] held”]; Connor v. Great Western Sav. & Loan Assn. 
(1968) 69 Cal.2d 850, 865 (Connor) [“The fact that Great 
Western was not in privity of contract with any of the plaintiffs 
except as a lender does not absolve it of liability for its own 
negligence in creating an unreasonable risk of harm to them [for 
the role it played in the construction of the properties]. . . .  The 
basic tests for determining the existence of such a duty are 
clearly set forth in Biakanja”]; cf. Brown, supra, 11 Cal.5th at 
pp. 217–218 [in holding the multifactor test set forth in Rowland 
was intended “as a means for deciding whether to limit a duty 
derived from other sources” finding relevant the fact that “in 
numerous cases since Rowland, we have repeated that the 
Rowland factors serve to determine whether an exception to 
[Civil Code] section 1714’s general duty of reasonable care is 
warranted”].) 
In contrast, we have never done what plaintiff now asks 
us to do:  rely on Biakanja to impose a tort duty on a contracting 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
40 
party to avoid negligently causing monetary harm to another 
party to that contract.  (Cf. Brown, supra, 11 Cal.5th at p. 219 
[in rejecting a litigant’s argument, finding significant the fact 
that no “decision of this court has done what [the litigant] asks 
us to do”].)  Neither Connor, supra, 69 Cal.2d 850, nor Aas, 
supra, 24 Cal.4th 627, reaches a contrary conclusion.  Plaintiff 
relies heavily on this pair of cases, arguing they show that 
Biakanja “is not limited to ‘stranger’ cases where the parties are 
not in privity.”  A careful reading of these authorities reveals 
they do not bear the weight plaintiff places on them. 
In Connor, the defendant Great Western Savings and 
Loan Association (Great Western) was involved in both the 
construction of a residential tract development and lending 
funds to eventual buyers of the residences.  (Connor, supra, 
69 Cal.2d at pp. 857–862.)  When the buyers of the homes — 
some of whom were in contractual privity with Great Western 
in its capacity as a mortgage lender — discovered “serious 
damages from cracking caused by ill-designed foundations,” 
they sued Great Western along with other parties.  (Id. at 
p. 856.)  In determining whether Great Western could be held 
liable for its negligence in connection with the construction of 
defective homes, we emphasized:  “Great Western voluntarily 
undertook business relationships with [a development company] 
to develop the Weathersfield tract and to develop a market for 
the tract houses in which prospective buyers would be directed 
to Great Western for their financing.  In undertaking these 
relationships, Great Western became much more than a lender 
content to lend money at interest on the security of real 
property.  It became an active participant in a home 
construction enterprise.  It had the right to exercise extensive 
control of the enterprise.”  (Id. at p. 864.)  We also stressed 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
41 
aspects of Great Western’s role as a construction lender, i.e., its 
function as a lender of funds to the developing company, “which 
made the enterprise possible.”  (Ibid.)  In contrast, we had little 
to say about Great Western’s loans to the eventual home 
buyers — the individuals with whom Great Western had a 
contractual relationship — other than that Great Western 
extracted certain concessions from the development company to 
ensure that its loans to the buyers would be profitable.  (Ibid.) 
We proceeded to apply the Biakanja factors and concluded 
from this exercise that Great Western owed a duty to the home 
buyers “to exercise reasonable care to protect them from 
damages caused by major structural defects.”  (Connor, supra, 
69 Cal.2d at p. 866.)  “The fact that Great Western was not in 
privity of contract with any of the plaintiffs except as a lender,” 
we said, “does not absolve it of liability for its own negligence in 
creating an unreasonable risk of harm to them.”  (Id. at p. 865.) 
Seizing on the language within Connor, supra, 69 Cal.2d 
850 acknowledging that Great Western was “in privity of 
contract with [some] of the plaintiffs . . . as a lender” (id., at 
p. 865) plaintiff argues that Biakanja is applicable even when 
the litigating parties are contracting partners.  Plaintiff ignores 
the fact that Great Western was not sued for conduct it engaged 
in as a residential lender, but for its role in developing the tract 
housing.  In other words, the Connor plaintiffs’ claim was 
independent of the lending contract they had with the 
defendant.  For the purpose of the suit, the plaintiffs and the 
defendant in Connor were economic strangers.  It is for this 
reason that we have since characterized Connor as a case in 
which “[w]e found that a construction lender had a duty to third 
party home buyers . . . .”  (Quelimane, supra, 19 Cal.4th at p. 58, 
italics added [“We found that a construction lender had a duty 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
42 
to third party home buyers in Connor . . . , because the lender 
had control over the quality of construction but failed to prevent 
major construction defects in the homes whose construction it 
financed”].)  In such cases, there is no reason that Biakanja, 
under its plain terms, would be inapplicable. 
Aas is likewise unhelpful to plaintiff, although for a 
different reason.  In Aas, the question was “whether 
homeowners and a homeowners association may recover 
damages in negligence from the developer, contractor and 
subcontractors who built their dwellings for construction defects 
that have not caused property damage.”  (Aas, supra, 24 Cal.4th 
at p. 632.)  The litigants in Aas were contracting parties for the 
purposes of the suit.  Because they were contracting parties, Aas 
recognized a concern that counseled against allowing the 
plaintiffs to recover in tort — namely, such recovery would 
result in an expansion of tort at the expense of contract 
principles.  (See id. at pp. 635–636.)  This was the same concern 
underlying Seely, supra, 63 Cal.2d 9, the matter in which we 
first articulated the contractual economic loss rule, and the Aas 
court discussed Seely and its progeny at length.  (See Aas, supra, 
24 Cal.4th at pp. 639–643.)  Based on Seely, Aas concluded that 
the economic loss rule barred the plaintiffs’ tort claim.  (Aas, at 
p. 632 [“Applying settled law limiting the recovery of economic 
losses in tort actions (Seely . . .), we answer the question 
[presented] in the negative”]; id. at p. 636.) 
In addition to explaining that the plaintiffs were 
precluded from recovering in tort by the economic loss rule, the 
Aas court engaged the plaintiffs’ contentions on their own terms.  
The plaintiffs in Aas asserted that J’Aire, a decision for which 
Biakanja served as the “acknowledged basis” (Aas, supra, 24 
Cal.4th at p. 638), “displace[d] the general rule” of Seely.  (Aas, 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
43 
at p. 645.)  In grappling with this argument, Aas noted that 
“[w]hile the court in J’Aire purported only to address duties 
owed to persons not in contractual privity with the defendant 
[citation], [California appellate] courts subsequently have 
applied J’Aire to cases in which privity did exist.”  (Aas, at 
p. 645.)  Although Aas was critical of the “subjective” 
“multifactor balancing test set out in J’Aire,” it nonetheless 
explained why even if that test — identical to that found in 
Biakanja — applied “to cases in which privity did exist,” no duty 
would be found.  (Aas, at pp. 646, 645.) 
Thus, in addressing and ultimately rejecting the plaintiffs’ 
negligence theory, Aas did consider, in a belt-and-suspenders 
fashion, how the Biakanja factors applied to the facts before it.  
(Aas, supra, 24 Cal.4th at pp. 646–649; see also Brown, supra, 
11 Cal.5th at p. 219 [explaining that although a case from this 
court may have considered a set of factors in a “belt-and-
suspenders fashion” to “ ‘explain further why we should not 
impose a duty,’ ” this does not mean that those factors constitute 
the sole mode of analysis to determine whether a duty exists].)  
But Aas never squarely addressed the proper role of Biakanja in 
a case involving contractual parties.  Its engagement with the 
Biakanja factors simply responded to the plaintiffs’ argument, 
as well as a separate opinion embracing that argument, rather 
than amounting to a reasoned extension of Biakanja to a new 
context.  (See Aas, at pp. 665–673 (conc. & dis. opn. of George, 
C. J.).)  Indeed, Aas itself offers no explanation regarding why 
Biakanja ought to “address duties owed to persons . . . in 
contractual privity with the defendant.”  (Aas, at p. 645.)  
Furthermore, no subsequent case has interpreted Aas as 
sanctioning an expansion of the Biakanja factors to determine 
whether one contractual party owes another a tort duty.  Aas 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
44 
therefore cannot be properly understood as endorsing the 
Biakanja factors as applicable to fact patterns such as the one 
before us. 
Finally, there is good reason that our precedents have 
applied the Biakanja multifactor test to find liability only when 
the parties to a proceeding are contractual strangers.  Recall 
that the six (nonexclusive) Biakanja factors are:  “[1] the extent 
to which the transaction was intended to affect the plaintiff, [2] 
the foreseeability of harm to him, [3] the degree of certainty that 
the plaintiff suffered injury, [4] the closeness of the connection 
between the defendant’s conduct and the injury suffered, [5] the 
moral blame attached to the defendant’s conduct, and [6] the 
policy of preventing future harm.”  (Biakanja, supra, 49 Cal.2d 
at p. 650.)  The first, second, and fourth Biakanja factors are 
heavily skewed in favor of liability in cases where the litigants 
are contractual partners and the alleged duty arises from the 
underlying contract.  (See Elsayed, supra, 215 F.Supp.3d at 
p. 963 [“The first, second, and fourth [Biakanja] factors would 
almost always find a special relationship between directly-
contracting parties:  the transaction would always be intended 
to affect the plaintiff, the harm would nearly always be 
foreseeable, and the connection between the defendant’s conduct 
and the injury would always be close”]; Body Jewelz, supra, 241 
F.Supp.3d at p. 1093 [same]; Sharkey, supra, 85 U.Cin. L.Rev. 
at p. 1034.)  Applying Biakanja in this and other similar 
contexts thus would unduly tip the scale in favor of finding a tort 
duty and subvert the economic loss rule in a class of cases in 
which that principle clearly applies.  (See, e.g., Seely, supra, 63 
Cal.2d at p. 18; Sharkey, supra, 85 U.Cin. L.Rev. at p. 1034.) 
Even in the present case, in which the negligence claim 
arises out of a contract between the parties if not from the 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
45 
breach of an obligation provided for in the contract, the Biakanja 
test cannot be coherently applied.  Consider, for example, the 
first of the Biakanja factors, “the extent to which the transaction 
was intended to affect the plaintiff.”  (Biakanja, supra, 49 Cal.2d 
at p. 650.)  What is the relevant transaction between plaintiff 
and Wells Fargo for purposes of this factor?  None of our prior 
cases applying Biakanja had to confront such an issue because 
in those cases, the defendants had a preexisting duty to fulfill 
specified responsibilities and the question before the courts was 
whether a failure to satisfy these obligations allowed the 
plaintiffs to sue the defendants in tort.  For instance, in 
Biakanja, the defendant notary was under an obligation to the 
plaintiff’s brother to properly prepare his will and the issue was 
whether the plaintiff could sue in light of the notary’s negligence 
in failing to have the will attested.  (See Biakanja, at p. 648 
[“The court found that defendant agreed and undertook to 
prepare a valid will”].)  In Bily, the accounting firm owed to a 
client company a “duty of care in the preparation of an 
independent audit of [the] client’s financial statements,” and we 
determined whether individuals other than the client may sue 
the firm when it allegedly botched the audit.  (Bily, supra, 
3 Cal.4th at p. 375.)  In J’Aire, the defendant contractor 
undertook “construction work pursuant to a contract with the 
owner of premises” that it had to finish “within a reasonable 
time,” and the inquiry was whether the contractor “may be held 
liable in tort for business losses suffered by a lessee when the 
contractor negligently fails to complete the project with due 
diligence.”  (J’Aire, supra, 24 Cal.3d at p. 802.)  Similarly, in Aas, 
the issue was whether the plaintiffs “may recover damages in 
negligence from the developer, contractor and subcontractors 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
46 
who built their dwellings for construction defects that have not 
caused property damage.”  (Aas, supra, 24 Cal.4th at p. 632.) 
The “transaction” in all of the aforementioned cases was 
thus the task — the preparation of a will, an audit of a client’s 
business, the construction of a dwelling, etc. — that the 
defendants already were lawfully obligated to carry out.  Here, 
the analogous agreement is the original mortgage contract 
between plaintiff and Wells Fargo.  But plaintiff is not making 
an argument that Wells Fargo’s failure to fulfill its duties under 
that agreement entitles him to sue it in tort; indeed, he disavows 
any reliance on the mortgage contract, repeating that he (the 
counterparty to the agreement) has no contract claim.  He 
argues instead that a loan modification, if it had been agreed 
upon, would have been intended to benefit him.  Plaintiff offers 
no explanation why the loan modification he sought is the 
relevant “transaction” for purposes of the first Biakanja factor.  
This uncertainty illustrates how Biakanja, as we have 
understood and applied it, is a poor framework for assessing 
whether there is a duty in a situation such as this. 
Therefore, on both doctrinal and pragmatic grounds, we 
conclude that the Biakanja factors are not applicable when, as 
here, the litigants are in contractual privity and the plaintiff’s 
claim is not “independent of the contract arising from principles 
of tort law.”  (Erlich, supra, 21 Cal.4th at p. 551.) 
b.  Policy Considerations 
As previously discussed, the rationales behind the 
economic loss rule provide a compelling basis to reject “a duty of 
care to process, review and respond carefully and completely to 
. . . loan modification applications.”  Plaintiff, however, argues 
that the “policy of preventing future harm” (Biakanja, supra, 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
47 
49 Cal.2d at p. 650) — and more generally the “ ‘ “sum total” ’ ” 
of policy considerations (Goonewardene v. ADP, LLC (2019) 
6 Cal.5th 817, 841) — require the recognition of his claim.  We 
cannot agree. 
Plaintiff raises two broad policy arguments.  First, he 
argues that without the ability to bring a negligence claim, he 
would be left “without any remedy at all” and as such, a viable 
tort claim is needed to prevent injury to borrowers like himself.  
Yet there are causes of action other than a general claim of 
negligence for failing to exercise reasonable care in processing, 
reviewing, and responding to a borrower’s loan modification 
application that may offer recourse to borrowers who suffer 
injury due to missteps by a lender (or loan servicer) in 
connection with the handling of a mortgage modification 
application.10  Two such causes of action are negligent 
misrepresentation and promissory estoppel.  (See, e.g., Apollo 
Capital Fund LLC v. Roth Capital Partners, LLC (2007) 158 
 
10  
And of course, in situations when a borrower has been 
injured by a lender’s intentional conduct during the loan 
modification process, the borrower may pursue various 
intentional tort theories, such as fraud and intentional 
misrepresentation.  (See, e.g., Robinson, supra, 34 Cal.4th at 
p. 984 [holding that the economic loss rule does not apply to 
claims for intentional misrepresentation or fraud]; see also 
Meixner v. Wells Fargo Bank, N.A. (E.D.Cal. 2015) 101 
F.Supp.3d 938, 955–957 [finding that the plaintiff had properly 
pleaded an intentional misrepresentation claim against a bank 
for conduct taken in a loan modification process]; McGee v. 
Citimortgage (D.Nev., May 31, 2013, No. 2:12-CV-2025 JCM 
(PAL)) 2013 U.S.Dist. Lexis 76675, pp. *14–*15 [finding that the 
plaintiff had stated a fraud claim].) 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
48 
Cal.App.4th 226, 243; C & K Engineering Contractors v. Amber 
Steel Co. (1978) 23 Cal.3d 1, 6.) 
Regarding the former, although plaintiff purports to bring 
only a negligence claim, his allegations to some degree focus on 
alleged misrepresentations.  He pleads, for example, that Wells 
Fargo called and spoke to his wife, informing her “there would 
be no . . . foreclosure sale of Plaintiff’s home.”  He also alleges 
that the telephone call further convinced him that his “home 
was no longer collateral for any debt Plaintiff owed to Wells 
Fargo” and the debt had been “modified such that it was now 
unsecured.”  Based on such a belief, plaintiff allegedly forwent 
pursuing alternatives to foreclosure and, as a result, eventually 
lost 
his 
house 
to 
foreclosure. 
 
Because 
“[n]egligent 
misrepresentation is a separate and distinct tort” from 
negligence (Bily, supra, 3 Cal.4th at p. 407), plaintiff is not 
estopped from asserting a negligent misrepresentation claim 
merely because his negligence claim fails.  
As for promissory estoppel, plaintiff argues that he could 
not bring such a claim because the elements of that claim “are 
difficult to establish in the mortgage modification context.”  Yet, 
plaintiff did assert a claim for promissory estoppel against the 
entities that foreclosed on his home, Mirabella and FCI, and we 
perceive no reason why such claims would be generally 
unavailable to borrowers in the modification context.  (Cf. 
Wigod, supra, 673 F.3d at p. 566 [holding that a borrower has 
“adequately alleged her claim of promissory estoppel” by 
pleading that the bank promised her that “if she made timely 
payments and accurate representations during the trial period, 
she would receive an offer for a permanent loan modification 
calculated using [certain] methodology”]; accord, Sheen, supra, 
38 Cal.App.5th at p. 348 [court below concludes that extension 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
49 
of “tort duties into mortgage modification negotiations” is 
unwarranted, in part, because “other bodies of law — breach of 
contract, negligent misrepresentation, promissory estoppel, 
fraud, and so forth — are better suited to handle contract 
negotiation issues”]; Rest., § 3, com. e, p. 4 [“A party may be 
injured by reliance on another’s negligent statements in the 
course of negotiating a contract that is never concluded. . . .  
Detailed doctrines in the law of contract, of restitution, and of 
estoppel have developed to provide relief in such cases where 
necessary”].) 
Furthermore, even taking at face value plaintiff’s 
argument that “no other source of law addresses the harm that 
[he] identifies,” plaintiff is not limiting the sought-for tort duty 
to only those instances when other sources of law fall short.  As 
plaintiff acknowledges, he is asking this court to “recognize a 
negligence-based duty of care that would cover all types of 
mortgage loans,” “including . . . those [already] covered by 
[HBOR].”  “That duty,” stresses plaintiff, “would be broader than 
the narrow affirmative duties imposed by HBOR.”  In essence, 
even if plaintiff has identified a gap in the law, he is not 
proposing to fill that gap.  Instead, he seeks to layer a new and 
expansive negligence cause of action atop all existing laws, 
imposing a tort duty with indefinite boundaries. 
We are unpersuaded that such a remedy should be created 
by judicial fiat.  Plaintiff recognizes that lawmakers at both the 
state and federal levels have been active in regulating the 
mortgage loan modification process.  As one amicus curiae 
observes, during the past 10 years, “[t]here has been an 
extraordinary profusion of new, robust and still-expanding 
consumer laws, regulations and enforcement authority” in the 
mortgage service industry, especially with regard to the 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
50 
regulation of “the conduct of mortgage servicers in distressed 
loan situations.”  To be sure, these laws and regulations do not 
occupy the field and preclude us from acting.  (See, e.g., Civ. 
Code, § 2924.12, subd. (g) [specifying that “[t]he rights, 
remedies, and procedures provided by [HBOR] are in addition to 
. . . any other rights, remedies, or procedures under any other 
law”].)  Nonetheless, they counsel against our taking action 
merely because we may.  (Cf. Connor, supra, 69 Cal.2d at p. 868 
[“There is no assurance, however, that the Legislature will 
undertake such a task [to regulate the challenged industry].  In 
the absence of actual or prospective legislative policy, the court 
is free to resolve the case before it . . . in terms of common law”].)  
This is especially so given that each time that Congress or our 
state Legislature has acted, it has passed detailed regulations 
specifying in minutia the obligations of lenders who handle 
mortgage modification applications.  In contrast with such 
detailed schemes, tort liability — with a yet-to-be articulated 
standard of care — is ill defined and amorphous.  We remain 
uncertain how such differing regulatory and statutory 
frameworks will function in practice, much less that they might 
operate together to better serve the interests of borrowers, 
lenders, or the public at large.  The vagueness and breadth of 
plaintiff’s proposed duty thus counsel against imposing that 
duty to correct for the problems he contends exist. 
Plaintiff’s second argument, that allowing his tort claim to 
go forward will “prevent[] future harm,” relies on asserted 
market failures within the mortgage industry.  (Biakanja, 
supra, 49 Cal.2d at p. 650.)  The main alleged market failure on 
which plaintiff focuses is a principal-agent problem whereby 
servicers (the agents) do not act in the best interests of the loan 
owners (their principals) and in the process, cause harm to 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
51 
borrowers.  Plaintiff’s argument is as follows.  Unlike 
“[t]raditional mortgage lending” in which a single bank would 
both originate the loan and service it, “[i]n modern mortgage 
servicing,” “these tasks have been dispersed among different 
actors.”  Now, plaintiff asserts, it is frequently the case that an 
entity that services a loan does not own the loan.  And as 
“modern mortgage servicing has become divorced from loan 
ownership,” the servicer develops interests that diverge from the 
loan owner’s.  Because the fee a servicer collects “does not 
depend on loan performance, nor on maximizing net present 
value through a modification,” servicers seek neither to ensure 
that loans perform nor to modify the loans when doing so would 
be profitable to the loan owners (i.e., when it would “maximiz[e] 
[the] net present value” of the loan).  Instead, “servicers have 
incentives to charge borrowers unnecessary fees and to extend 
default,” presumably because such actions inflate the servicing 
fees.  Such market failures, plaintiff argues, justify judicial 
intervention. 
We observe at the outset that insofar as plaintiff has 
identified a problem, he is not proposing to tailor his proposed 
solution to the problem in any way.  Here, Wells Fargo was the 
originator, owner, and servicer of plaintiff’s loans at the time of 
the challenged conduct.  There could be no principal-agent 
problem in such circumstances because Wells Fargo was both 
the principal (owner) and agent (servicer) in managing 
plaintiff’s loans.  (Accord, e.g., Levitin, supra, 28 Yale J. on Reg. 
at p. 11 [“A traditional portfolio lender has an undivided 
economic interest in the loan’s performance and therefore fully 
internalizes the costs and benefits of its management decisions, 
such as whether to restructure or foreclose on a defaulted 
loan”].)  Despite the fact that Wells Fargo was behaving much 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
52 
as banks involved in “[t]raditional mortgage lending” do, 
plaintiff would have us impose a duty on Wells Fargo regardless.  
It is difficult to see how doing so would be justified when the 
asserted basis for the duty is that servicers do not act in the 
owners’ interests. 
 
Moreover, even taking the principal-agent problem at face 
value, plaintiff has not supplied a convincing reason why tort 
law is the right approach to correct such a problem.  Some of the 
problems plaintiff perceives have been anticipated and (at least 
partially) addressed by the principals and agents themselves.  
For example, although plaintiff claims that servicers have 
incentives to “extend default” because such extensions generate 
additional fees for servicers, he does not mention that as long as 
the borrowers are in default, the servicers are obligated by their 
agreements with loan owners to advance the payments that the 
borrowers are missing.  (See Odinet, Foreclosed:  Mortgage 
Servicing and the Hidden Architecture of Homeownership in 
America (2019) pp. 53–54 (Odinet) [“The mortgage middlemen 
pick up the tab when homeowners default, meaning that the 
servicer is responsible for making principal and interest 
payments to the [loan owners] when monthly mortgage 
payments from borrowers are not forthcoming”].)  Plaintiff does 
not explain why such private ordering is inadequate or 
unsatisfactory.11  And it is unclear how allowing borrowers to 
 
11  
Nor does plaintiff satisfactorily explain how imposing the 
duty he presses here would encourage servicers to engage in the 
modification process rather than simply foreclose.  After all, if a 
servicer proceeds immediately to foreclosure instead of 
accepting or processing a modification application, it (and the 
lender) presumably cannot be held negligent for having failed to 
 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
53 
bring lawsuits against servicers and lenders indiscriminately is 
likely to properly adjust the incentives between those entities. 
The Attorney General, in his briefing in support of 
plaintiff, points to another source of asserted market failure.  He 
argues that residential borrowers suffer from optimism bias and 
therefore do not bargain over obligations that would arise only 
when they default.  But if the problem is undue optimism, then 
legislation requiring information to temper that optimism — or 
a new mandatory insurance scheme, whereby all homeowners, 
no matter how optimistic, are forced to pay for the cost of “help  
from their servicers to avoid foreclosure” — would seem more 
appropriate and directly responsive than tort liability. 
C.  The Role of the Legislature 
 
This brings us to the fact that recognizing a duty of the 
sort plaintiff presses for here would impose real costs — and 
challenging decisions to be made about who should bear those 
costs.  As one commentator reports, “the cost of servicing a 
default mortgage loan was 15 times higher than the cost of 
managing one that was not in default ($2,537 compared to 
$156).”  (Odinet, supra, at pp. 119–120.)  Any changes to the 
mortgage industry that require servicers to raise the level of the 
service they provide — to “process, review and respond [more] 
carefully and completely to the loan modification applications” 
than they are currently doing — will likely raise the cost of 
 
exercise a specific standard of care in handling any such 
application.  (Accord, Cenatiempo, supra, 219 A.3d at p. 793 [“If 
the court were to recognize a common-law duty of care, . . . it 
could result in loan servicer liability for isolated violations or far 
less consequential violations of the loan modification process, 
which would hinder servicer participation in the modification 
process”].) 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
54 
providing that service as well.  (Levitin, supra, 28 Yale J. on Reg. 
at p. 89 [“It bears emphasis that changes to the servicing market 
could result in higher mortgage costs”].)  “This reality is a policy 
tradeoff . . . .”  (Ibid.)  In particular, “[a]ny reform of mortgage 
servicing to make it more conducive to loss mitigation via loan 
restructuring could add to the cost of mortgage finance and 
thereby discourage new homeownership.  Thus, any mortgage 
servicing reform must be considered as part of a trade-off 
between making home purchases more affordable and ensuring 
sustainable, long-term homeownership levels.”  (Id. at p. 8.) 
 
This is far from suggesting that reforms to the mortgage 
service industry would not be worthwhile.  Instead, it is to 
emphasize the tradeoffs and policy judgments underlying such 
reforms.  These are policy choices that the judiciary is poorly 
positioned to make.  The Legislature, on the other hand, “has at 
its disposal a wider range of options and superior access to 
information about the social costs and benefits of each” policy.  
(Aas, supra, 24 Cal.4th at p. 652 [“ ‘Legislatures, in making such 
policy decisions, have the ability to gather empirical evidence, 
solicit the advice of experts, and hold hearings at which all 
interested parties may present evidence and express their 
views’ ”]; see also Gas Leak Cases, supra, 7 Cal.5th at p. 413 
[“[T]he Legislature can bring to bear a mix of expertise while 
considering competing concerns to craft a solution in tune with 
public demands”].)  With these tools at its disposal and acting 
“through the democratic process” (Gas Leak Cases, at p. 413), 
the Legislature can best decide what additional protection 
homeowners in California should be afforded.  (See Aas, at 
pp. 652, 653 [observing “[h]ome buyers in California already 
enjoy protection” under various bodies of law for the harms 
alleged and concluding that “the Legislature may add whatever 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
55 
additional protections it deems appropriate” but that we should 
not “preempt the legislative process with a judicially created 
rule of tort liability”].)  In particular, should it choose to the 
Legislature can both prescribe whether a lender must act 
“reasonably” and (in some detail, if it chooses) what constitutes 
“reasonable” behavior within this sphere.  Because such 
decisions carry “[t]he potential for . . . broad-ranging economic 
consequences,” including the possibility of “increas[ing] the 
already prohibitively high cost of housing in California,” 
“affect[ing] the availability of” cheap financing options for 
would-be homeowners, and “greatly diminish[ing] the supply of 
affordable housing,” the task of making such policy decisions 
“should be left to the Legislature.”  (Erlich, supra, 21 Cal.4th at 
p. 560; see also Cates Construction, supra, 21 Cal.4th at pp. 60–
61; Foley, supra, 47 Cal.3d at p. 694.) 
In sum, the Legislature is better situated than we are to 
tackle the “[s]ignificant policy judgments affecting social policies 
and commercial relationships” implicated in this case.  (Foley, 
supra, 47 Cal.3d at p. 694; see also Aas, supra, 24 Cal.4th at 
p. 652.)  In recognition of the institutional competence of our 
coequal branch of government, we decline plaintiff’s invitation 
to become the first state high court to create a judicial rule 
imposing a duty on lenders to exercise due care in processing, 
reviewing and responding to loan modification applications.12 
 
12  
To the extent they are inconsistent with our opinion, we 
disapprove of Weimer v. Nationstar Mortgage, LLC, supra, 
47 Cal.App.5th 341; Rossetta v. CitiMortgage, Inc., supra, 
18 Cal.App.5th 628; Daniels v. Select Portfolio Servicing, Inc., 
supra, 246 Cal.App.4th 1150; and Alvarez v. BAC Home Loans 
Servicing, L.P., supra, 228 Cal.App.4th 941.  We have no 
 
SHEEN v. WELLS FARGO BANK, N.A. 
Opinion of the Court by Cantil-Sakauye, C. J. 
56 
III.  CONCLUSION 
We hold that when a borrower requests a loan 
modification, a lender owes no tort duty sounding in general 
negligence principles to “process, review and respond carefully 
and completely to” the borrower’s application.  Because the 
Court of Appeal’s decision is in accord, we affirm the judgment 
below. 
 
CANTIL-SAKAUYE, C. J. 
 
We Concur: 
CORRIGAN, J. 
LIU, J. 
KRUGER, J. 
GROBAN, J. 
JENKINS, J. 
McCONNELL, J. *
 
occasion to consider the viability of claims other than the 
negligence cause of action presented in these cases.  In 
particular, nothing we say should be understood to address 
whether some of the conduct considered by the Courts of Appeal 
would support negligent misrepresentation or promissory 
estoppel claims. 
* 
Administrative Presiding Justice of the Court of Appeal, 
Fourth Appellate District, Division One, assigned by the Chief 
Justice pursuant to article VI, section 6 of the California 
Constitution. 
 
 
SHEEN v. WELLS FARGO BANK, N.A. 
S258019 
 
Concurring Opinion by Justice Liu 
 
The question in this case is whether defendant Wells 
Fargo Bank owed plaintiff Kwang K. Sheen a “duty of care to 
process, review and respond carefully and completely to the loan 
modification applications” Sheen submitted.  The court answers 
no to this question, and I concur with this limited holding.  
Sheen sought modification of two junior loans from Wells Fargo, 
a lender that made no representations or assurances regarding 
the modification.  Wells Fargo had no obligation to accept, 
consider, or approve the modification, and mere receipt of 
Sheen’s application did not give rise to a tort duty of care in the 
circumstances here. 
But this case calls our attention to an important area that 
may warrant further consideration by the Legislature.  As many 
reported decisions detail, borrowers seeking mortgage loan 
modifications may be strung along by loan servicers’ 
incompetence, pursuit of fees, or improper incentives over the 
course of years, leading borrowers to forgo other remedies.  
According to Sheen, the California Homeowner Bill of Rights 
(HBOR), designed “to ensure that . . . borrowers are considered 
for, and have a meaningful opportunity to obtain, available loss 
mitigation options” (Civ. Code, § 2923.4), “imposes a narrow set 
of duties on servicers”; its “protections are insufficient to cover 
the myriad ways in which a servicer’s negligence can injure 
borrowers when it comes to loan modification.”  The frequency 
with which these issues are making their way through the 
SHEEN v. WELLS FARGO, N.A. 
Liu, J., concurring 
2 
courts — along with what the Civil Justice Association of 
California, California Chamber of Commerce, and Western 
Bankers Association as amici curiae call the “Damoclean repeat 
of the 2008–2012 foreclosure crisis [that] looms on the 
horizon” — suggests that legislative action may be warranted.  
I. 
Today’s opinion holds that Wells Fargo owed Sheen no 
“ ‘duty of care to process, review and respond carefully and 
completely to the loan modification applications’ ” he submitted.  
(Maj. opn., ante, at p. 1.)  Sheen alleged that “Wells Fargo never 
contacted [him] about the status of his mortgage modification 
applications, or to inform his as to whether his applications for 
modification . . . had been approved or rejected.”  He did not 
allege that Wells Fargo made the type of representations or 
exhibited the affirmative conduct relating to modification that 
courts have relied on in finding a duty in related contexts.  (See, 
e.g., Weimer v. Nationstar Mortgage, LLC (2020) 47 Cal.App.5th 
341, 348–350, 359, 362 (Weimer) [borrower alleged Nationstar, 
in order to continue collecting fees from servicing a delinquent 
account, forced him to submit the same applications and 
documents on multiple occasions and instructed him to apply for 
a program he was ineligible for]; Rossetta v. CitiMortgage, Inc. 
(2017) 18 Cal.App.5th 628, 643 (Rossetta) [borrower alleged 
CitiMortgage told her that she needed to be at least three 
months delinquent for it to assist her and required her to submit 
the same documents over and over again, lost or mishandled 
documents, misstated the status of various applications, and 
ultimately denied them for “bogus reasons”]; Daniels v. Select 
Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150, 1158 
[borrowers alleged Bank of America advised them to miss 
payments to qualify for modification, told them to make reduced 
SHEEN v. WELLS FARGO, N.A. 
Liu, J., concurring 
3 
monthly payments, assured them they would be granted a 
modification if they complied with the bank’s instructions, and 
required them to submit duplicative documentation after 
assuring them that the necessary documents had been received]; 
Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 
Cal.App.4th 941, 944–945, 948–949 (Alvarez) [borrowers alleged 
servicers agreed to consider their modification applications, 
relied on incorrect information and mishandled submitted 
documents, prevented the applications from being processed in 
a timely manner, and deterred borrowers from seeking other 
remedies]; see also Jolley v. Chase Home Finance, LLC (2013) 
213 Cal.App.4th 872, 881 (Jolley) [borrower testified that Chase 
reassured him on many occasions that there was a high 
likelihood it would be able to modify the loan, which he relied on 
in borrowing heavily to finish the project].)   
Instead, Sheen alleged that because Wells Fargo failed to 
respond to his applications, subsequent communication 
concerning the delinquency on his accounts led him to believe 
that his loans had been modified.  (Maj. opn., ante, at pp. 4–6.)  
Sheen also alleged that Wells Fargo told his wife “there would 
be no more foreclosure sale” of the home.  While these 
allegations may support a claim for negligent misrepresentation 
(maj. opn., ante, at p. 48), failure to respond to an application 
falls short of the type of affirmative conduct and ongoing 
interaction with lenders or servicers regarding modification that 
lead borrowers to believe they just need to keep working with 
servicers to secure modification and avoid foreclosure.   
Recognizing a duty of care may well be justified where a 
lender or servicer makes assurances that an application is being 
considered or advises an applicant on a certain course of action, 
and then proceeds to mishandle documents, misstate the 
SHEEN v. WELLS FARGO, N.A. 
Liu, J., concurring 
4 
application’s status, require an applicant to submit duplicate or 
nonexistent documents, or otherwise string the applicant along 
and cause the applicant to forgo alternative remedies.  (See 
Rossetta, supra, 18 Cal.App.5th at p. 645 (conc. opn. of Mauro, 
Acting P. J.) [emphasizing that the duty of care arose not from 
the “lender’s mere receipt or review of [the] borrower’s loan 
modification application” but from the allegations concerning 
CitiMortgage’s conduct]; Jolley, supra, 213 Cal.App.4th at 
p. 898 [“where specific representations were made by a Chase 
representative as to the likelihood of a loan modification, a cause 
of action for negligence has been stated that cannot be properly 
resolved based on lack of duty alone”].)  But such allegations are 
not before us in this case.  While disapproving Weimer, Rossetta, 
Daniels, and Alvarez “to the extent they are inconsistent with” 
today’s opinion (maj. opn., ante, at p. 55, fn. 12), the court does 
not address whether a lender’s or servicer’s affirmative conduct 
may give rise to a duty to process the application with due care.   
Today’s opinion also leaves for another day the 
applicability of other causes of action to servicer misconduct and 
the scope of related doctrines.  The court highlights that 
negligent misrepresentation and promissory estoppel “may offer 
recourse to borrowers who suffer injury due to missteps by a 
lender (or loan servicer) in connection with the handling of a 
mortgage modification application.”  (Maj. opn., ante, at p. 47.)  
While Sheen did not seek leave to amend his complaint to state 
either of these causes of action, today’s opinion makes clear that 
“nothing we say . . . should be understood to categorically 
foreclose those claims in the mortgage modification context.”  
(Id. at p. 3; see id. at p. 48 [“we perceive no reason why such 
claims would be generally unavailable to borrowers”].)  Nor does 
today’s opinion consider whether the doctrine of promissory 
SHEEN v. WELLS FARGO, N.A. 
Liu, J., concurring 
5 
estoppel 
or 
negligent 
misrepresentation 
may 
require 
clarification or reform to respond effectively in this context.  (See 
Rest.3d Torts, Liability for Economic Harm (June 2020) § 3, 
com. d., p. 4 (Restatement) [“if denying relief to the plaintiff 
seems to produce an injustice,” it may be necessary “to 
reconsider the application” of doctrines “responsible for the 
result”]; maj. opn., ante, at p. 32 [reciting the Restatement’s 
view].) 
Today’s opinion also restates the “ ‘general rule’ ” that “ ‘a 
lender owes no duty of care to a borrower when the lender’s 
involvement in the loan transaction does not exceed its 
customary role in arms-length lending and servicing.’ ”  (Maj. 
opn., ante, at pp. 21–22; see Nymark v. Heart Fed. Savings & 
Loan Assn. (1991) 231 Cal.App.3d 1089, 1096.)  The court states 
that “without more,” a “lender’s handling of a modification 
application” “does not ‘exceed the scope of [an institution’s] 
conventional role as a mere lender of money.’ ”  (Maj. opn., ante, 
at p. 24, italics added.)  But the court expresses no view on what 
constitutes “ ‘extraordinary advice . . . beyond that customary in 
arms-length lending and loan services transactions’ ” (id. at 
p. 21) such that it may give rise to a duty of care.  (See, e.g., 
Rossetta, supra, 18 Cal.App.5th at p. 646 (conc. opn. of Mauro, 
Acting P. J.) [“agree[ing] with the majority that CitiMortgage 
engaged in acts and omissions that went beyond the scope of 
conventional lending”]; Weimer, supra, 47 Cal.App.5th at p. 362 
[concluding that the type of lender activity alleged places it 
“beyond the mere consideration of [the borrower’s] loan 
modification applications”]; see also Jolley, supra, 213 
Cal.App.4th at p. 902 [“ ‘Nymark . . . do[es] not purport to state 
a legal principle that a lender can never be held liable for 
negligence in its handling of a loan transaction within its 
SHEEN v. WELLS FARGO, N.A. 
Liu, J., concurring 
6 
conventional role as a lender of money.’ ”]; Nymark, at pp. 1098–
1099.) 
The court today also restates the so-called economic loss 
rule.  In a future case, we may need to grapple with the 
boundaries of the rule and its application to contexts where 
parties cannot “reliably be counted on to protect their interests.”  
(Farnsworth, The Economic Loss Rule (2016) 50 Val.U. L.Rev. 
545, 546 (Farnsworth); see Rest., § 3, com. c., p. 3 [“the purpose 
of this Section is to protect the bargain the parties made”].)  
Private ordering through contracts as an alternative to 
negligence liability through tort is generally more compelling 
with a “ ‘more sophisticated class of plaintiffs . . . e.g., business 
lenders and investors,’ ” as opposed to “the average home buyer 
[who] is more akin to ‘the “presumptively powerless 
consumer” ’ ” with little to no means to alter the agreement in 
the first place.  (Beacon Residential Community Assn. v. 
Skidmore, Owings & Merrill LLP (2014) 59 Cal.4th 568, 579, 
584, quoting Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 
398, 403.)  But today’s opinion does not state a broad rule 
against recovery for pure economic loss in tort in the context of 
a contractual relationship (maj. opn., ante, at p. 15), and courts 
should not invoke the rule without considering the basis for its 
application.  (See Farnsworth, supra, 50 Val.U. L.Rev. at p. 550 
[“Stating a broad rule against recovery for pure economic loss in 
tort has [a] worrisome consequence . . . [:]  It creates a 
presumption against liability in cases that don’t fit into one of 
the well-defined exceptions.  This can cause legitimate claims to 
be snuffed out inadvertently by the sweep of the rule in the 
background.  Trouble predictably results when a rule is recited 
and extended without attention to its rationale.”]; see also, e.g., 
Tiara Condo. Ass’n. v. Marsh & McLennan Co. (Fla. 2013) 110 
SHEEN v. WELLS FARGO, N.A. 
Liu, J., concurring 
7 
So.3d 399, 407 [“limit[ing] the application of the economic loss 
rule to cases involving products liability” in light of “the 
unprincipled extension of the rule” to new domains].) 
Moreover, in restating these general rules, today’s opinion 
takes care to consider the policy concerns at play.  (Maj. opn., 
ante, at pp. 46–53.)  After recognizing that the factors set out in 
Biakanja v. Irving (1958) 49 Cal.2d 647, 650, do not provide the 
proper framework for considering the policy concerns present in 
this case (maj. opn., ante, at p. 46), the court proceeds to consider 
the relevant concerns, as we must in any case claiming a duty of 
care in tort.  (See, e.g., Southern California Gas Leak Cases 
(2019) 7 Cal.5th 391, 399 [“the inquiry hinges . . . on a 
comprehensive look at ‘ “the sum total” ’ of the policy 
considerations at play in the context before us”]; Erlich v. 
Menezes (1999) 21 Cal.4th 543, 552 [“ ‘ “Whether a defendant 
owes a duty of care is a question of law.  Its existence depends 
upon the foreseeability of the risk and a weighing of policy 
considerations for and against imposition of liability.” ’ ”]; see 
also Flagstaff Housing v. Design Alliance (Ariz. 2010) 223 P.3d 
664, 669 [“The economic loss doctrine may vary in its application 
depending on context-specific policy considerations.”].) 
II. 
Importantly, today’s opinion recognizes that while 
“lawmakers at both the state and federal levels have been active 
in regulating the mortgage loan modification process” (maj. 
opn., ante, at p. 49), borrowers continue to face serious 
difficulties with servicers and the loan modification process (id. 
at p. 35). 
When borrowers first seek a loan, they are generally able 
to choose among various lenders.  But, practically speaking, 
SHEEN v. WELLS FARGO, N.A. 
Liu, J., concurring 
8 
they have little ability to negotiate terms.  As the Attorney 
General appearing as amicus curiae states, “[m]ost homeowners 
do not have the technical knowledge of mortgage servicing that 
would be necessary to request meaningful, consumer-protective 
contract terms.”  And “[e]ven if homeowners are knowledgeable 
and concerned about management of their loan upon default, 
they cannot know or choose whether their loan will be 
securitized, who will be the servicer, and what contractual 
provisions will govern the servicing of their loan.”  (Levitin & 
Twomey, Mortgage Servicing (2011) 28 Yale J. on Reg. 1, 83 
(Levitin).)   
In this context, “ ‘borrowers are captive, with no choice of 
servicer, little information, and virtually no bargaining power. 
. . .  Borrowers cannot pick their servicers or fire them for poor 
performance.  The power to hire and fire is an important 
constraint on opportunism and shoddy work in most business 
relationships.  But in the absence of this constraint, servicers 
may actually have positive incentives to misinform and under-
inform 
borrowers. 
 
Providing 
limited 
and 
low-quality 
information not only allows servicers to save money on customer 
service, but increases the chances they will be able to collect late 
fees and other penalties from confused borrowers.’ ”  (Alvarez, 
supra, 228 Cal.App.4th at p. 949.) 
As Sheen describes, “[d]uring the modification process, the 
homeowner has to rely entirely on information from the servicer 
both about whether the loan is likely to be modified, and on the 
status of the modification, to make life-changing decisions such 
as whether to file for bankruptcy, sell the home, or give up the 
home through foreclosure or deed in lieu of foreclosure.”  
Alternatives to foreclosure may include obtaining alternate 
funding, refinancing, or receiving modification of other loans 
SHEEN v. WELLS FARGO, N.A. 
Liu, J., concurring 
9 
under other programs or with other servicers.  Some 
alternatives may also present less damage to a borrower’s credit 
report than a foreclosure.  But these alternatives can become 
more difficult or impossible to obtain if a servicer mishandles 
the modification application process.  Borrowers have reported 
accruing “additional arrears, penalties, fees, and harm to [their] 
credit,” potentially affecting their eligibility for alternatives 
they otherwise would have qualified for.  (Weimer, supra, 47 
Cal.App.5th at p. 361.)  And at some point, it simply becomes too 
late to pursue alternatives.  (See Lueras v. BAC Home Loans 
Servicing, LP (2013) 221 Cal.App.4th 49, 59 [borrower alleged 
Bank of America continued to make representations regarding 
modification within just two weeks of the foreclosure sale].)   
It is questionable whether the relationship between 
lenders or investors and servicers is sufficient to ensure that 
servicers exercise due care and avoid “unnecessary home 
foreclosures, to the detriment of homeowners and mortgage 
investors alike.”  (Levitin, supra, 28 Yale J. on Reg. at p. 4; see 
id. at p. 1 [describing servicers’ cost and income structure as 
“skewed toward foreclosure” and the dysfunctional nature of the 
loss mitigation component of servicing]; Thompson, Foreclosing 
Modifications: How Servicer Incentives Discourage Loan 
Modifications (2011) 86 Wash. L.Rev. 755, 761 [“the incentive 
structure for the servicers . . . generally favors foreclosures over 
modifications”]; Note, Mortgage Loan Modification: Barriers to 
Use (2009) 28 Rev. Banking & Fin. L. 426, 429–430 [describing 
servicers’ and investors’ incentives as not always aligned, 
leading to a suboptimal number of loan modifications even 
where there is an agreement requiring a servicer to take actions 
to maximize the net present value of a securitized portfolio].)  
Moreover, the loss to the lender or investor fails to reflect the 
SHEEN v. WELLS FARGO, N.A. 
Liu, J., concurring 
10 
magnitude of the potential harm foreclosure can have on the 
individual and broader community.  (See, e.g., Sen. Rules Com., 
Off. of Sen. Floor Analyses, Conf. Rep. on Sen. Bill No. 900 
(2011–2012 Reg. Sess.) as amended June 27, 2012, p. 14 
[“Foreclosures blight neighborhoods, put financial pressure on 
families and drive down local real estate values, and consumers, 
made more cautious by a crippled housing market, spend less 
freely, curbing the economy’s growth.”].)  Private ordering does 
not fully account for these externalities. 
HBOR provides a number of procedural protections in the 
context of first-lien mortgage servicing.  It prevents “dual-
tracking” of foreclosure and loan modification, and requires 
servicers to assign applicants a single point of contact who must 
communicate the process to apply for loan modification, notify 
the borrower of missing documents, adequately inform the 
borrower of the status of her or his application, and ensure the 
borrower is considered for all alternatives to foreclosure, if any, 
offered by the servicer.  (Civ. Code, §§ 2923.6, 2923.7, 2924.18.)  
A servicer must also identify in writing reasons for a denial and 
give an applicant a chance to appeal before proceeding with a 
foreclosure.  (Id., § 2923.6.)  The Legislature may wish to 
consider whether any of these standards should be extended to 
servicers of second- or third-lien mortgages.  (See Sen. Rules 
Com., Off. of Sen. Floor Analyses, Conf. Rep. on Sen. Bill 900 
(2011–2012 Reg. Sess.) as amended April 26, 2012, p. 26; U.S. 
Dept. of Treas., Making Home Affordable: Program Update 
(Apr. 28, 2009) p. 2, available at “Second Lien Program Fact 
Sheet”  [as of Mar. 7, 2022] [“Even if a first lien is 
modified to create an affordable payment, second liens can 
contribute to much higher foreclosure rates if not addressed.”]; 
SHEEN v. WELLS FARGO, N.A. 
Liu, J., concurring 
11 
the Internet citation in this opinion is archived by year, docket 
number, 
and 
case 
name 
at 
.) 
In sum, numerous cases demonstrate “the difficulties 
borrowers face in the loan modification context.”  (Maj. opn., 
ante, at p. 35.)  These difficulties have particular salience as 
pandemic relief programs wane and foreclosure rates rise.  In 
some instances, a judicial remedy may be available.  But given 
the limitation on common law negligence claims explained in 
today’s opinion, whether the mortgage market and affected 
communities would benefit from additional protections for 
borrowers against manipulative practices and “bargaining or 
information asymmetries” (ibid.) continues to be ripe for 
legislative consideration. 
 
LIU, J. 
 
1 
SHEEN v. WELLS FARGO BANK, N.A. 
S258019 
 
Concurring Opinion by Justice Jenkins 
 
I write separately to address my participation in Alvarez 
v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941 
(Alvarez), a Court of Appeal opinion I joined, but which the court 
now, following a robust discussion of the economic loss rule and 
the scope of Biakanja v. Irving (1958) 49 Cal.2d 647, partially 
disapproves. 
In Alvarez, plaintiff borrowers alleged their loan servicers 
owed them “a duty to exercise reasonable care in the review of 
their loan modification applications once they had agreed to 
consider them.”  (Alvarez, supra, 228 Cal.App.4th at p. 944.)  The 
servicers, after they “undertook to review” loan modifications 
available under the federal Home Affordable Modification 
Program (HAMP), allegedly breached a duty of care by “(1) 
failing to review plaintiffs’ applications in a timely manner, (2) 
foreclosing on plaintiffs’ properties while they were under 
consideration for a HAMP modification and (3) mishandling 
plaintiffs’ applications by relying on incorrect information.”  
(Alvarez, at p. 945.)  “Much of th[is]” was “conduct now regulated 
by the HBOR” — that is, the then recently enacted California 
Homeowner Bill of Rights.  (Alvarez, at p. 951; see maj. opn., 
ante, at pp. 11–12.) 
 
Alvarez recognized a duty of care.  In doing so, it first 
restated the general rule of Nymark v. Heart Fed. Savings & 
Loan Assn. (1991) 231 Cal.App.3d 1089, that “a financial 
institution owes no duty of care to a borrower when the 
SHEEN v. WELLS FARGO BANK, N.A. 
Jenkins, J., concurring 
2 
institution’s involvement in the loan transaction does not exceed 
the scope of its conventional role as a mere lender of money.”  
(Alvarez, supra, 228 Cal.App.4th at p. 945.)  After citing Nymark 
and Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 
872, Alvarez noted an exception to the general no-duty rule if 
the factors set forth in Biakanja pointed towards a duty.  
(Alvarez, at p. 945; see Nymark, at p. 1098 [California’s “test for 
determining whether a financial institution owes a duty of care 
to a borrower-client ‘ “involves the balancing of [the Biakanja] 
factors” ’ ”]; see maj. opn., ante, at p. 22.)  Alvarez concluded the 
Biakanja factors, given the plaintiffs’ allegations, favored a 
duty.  (Id. at p. 948–951.) 
 
Alvarez discussed the Biakanja factors at length but did 
not scrutinize on what basis that multifactor test should apply, 
if at all, in determining a lender’s or servicer’s duties towards 
borrowers.  Critically, Alvarez did not have occasion to address 
the contractual economic loss rule or Biakanja’s relationship to 
that rule.  In light of the parties’ arguments here that crystalize 
the significance of these important preliminary questions, I 
agree with the resolution the court reaches today. 
Furthermore, the duty Kwang K. Sheen here seeks to 
impose on Wells Fargo Bank, N.A. — to reasonably “process, 
review, and respond” to loan modification applications — is not 
premised on a lender or servicer first agreeing to do those things, 
which was part of the analysis in Alvarez.  (Alvarez, supra, 228 
Cal.App.4th at p. 948 [“because defendants allegedly agreed to 
consider modification of the plaintiffs’ loans, the Biakanja 
factors clearly weigh in favor of a duty”].)  The court, today, does 
not address what liability might ensue, whether for negligence 
or some other theory such as negligent misrepresentation or 
promissory estoppel, if a lender or servicer more than merely 
SHEEN v. WELLS FARGO BANK, N.A. 
Jenkins, J., concurring 
3 
agrees to consider a loan modification.  (Maj. opn., ante, at pp. 
16–17, fn. 4, 47–48.) 
With these observations, I concur in the well-reasoned 
majority opinion. 
 
JENKINS, J. 
 
 
 
See next page for addresses and telephone numbers for counsel who 
argued in Supreme Court. 
 
Name of Opinion  Sheen v. Wells Fargo Bank, N.A. 
__________________________________________________________  
 
Procedural Posture (see XX below) 
Original Appeal  
Original Proceeding 
Review Granted (published) XX 38 Cal.App.5th 346 
Review Granted (unpublished)  
Rehearing Granted 
__________________________________________________________  
 
Opinion No. S258019 
Date Filed:  March 7, 2022 
__________________________________________________________  
 
Court:  Superior  
County:  Los Angeles  
Judge:  Robert Leslie Hess 
__________________________________________________________   
 
Counsel: 
 
Los Angeles Center for Community Law and Action, Noah Grynberg; 
Public Justice, Leslie A. Brueckner and Adrienne H. Spiegel for 
Plaintiff and Appellant. 
 
Huddleston & Sipos Law Group and Robert A. Huddleston for John A. 
Phillips as Amicus Curiae on behalf of Plaintiff and Appellant. 
 
Xavier Becerra, Attorney General, Nicklas A. Akers, Assistant 
Attorney General, Michele Van Gelderen and Amy Chmielewski, 
Deputy Attorneys General, for Attorney General as Amicus Curiae on 
behalf of Plaintiff and Appellant. 
 
Arbogast Law, David M. Arbogast; Smoger & Associates and Gerson H. 
Smoger for Consumer Attorneys of California as Amicus Curiae on 
behalf of Plaintiff and Appellant. 
 
 
 
Lisa Sitkin; Law Office of Eric Andrew Mercer and Eric Mercer for 
National Housing Law Project and Eric Mercer as Amici Curiae on 
behalf of Plaintiff and Appellant. 
 
Kutak Rock, Jeffrey S. Gerardo, Steven M. Dailey; Munger, Tolles & 
Olson, David H. Fry, Benjamin J. Horwich and Rachel G. Miller-
Ziegler for Defendant and Respondent. 
 
Fred J. Hiestand for the Civil Justice Association of California, the 
California Chamber of Commerce and the Western Bankers 
Association as Amici Curiae on behalf of Defendant and Respondent. 
 
Wright, Finlay & Zak, Jonathan D. Fink, T. Robert Finlay; Kirby & 
McGuinn, Martin T. McGuinn and Michael R. Pfeifer for California 
Mortgage Association, California Mortgage Bankers Association, 
Mortgage Bankers Association and United Trustees Association as 
Amici Curiae on behalf of Defendant and Respondent. 
 
 
Counsel who argued in Supreme Court (not intended for 
publication with opinion): 
 
Leslie A. Brueckner 
Public Justice, P.C. 
475 14th Street, Suite 610 
Oakland, CA 94612 
(510) 622-8205 
 
Benjamin J. Horwich 
Munger, Tolles & Olson LLP 
560 Mission Street, 27th Floor 
San Francisco, CA 94105 
(415) 512-4066