Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_15-cv-01934/USCOURTS-caed-2_15-cv-01934-0/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 28:1332 Diversity-Petition for Removal

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UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF CALIFORNIA 

EDGAR MARTINEZ, et al., 

Plaintiffs, 

v. 

FLAGSTAR BANK, FSB et al., 

Defendants. 

No. 2:15-cv-01934-KJM-CKD 

ORDER 

Having reviewed the complaint and the parties’ briefing on defendants’ motion to 

dismiss, the court orders as follows. 

I. JUDICIAL NOTICE 

The court grants the defendants’ unopposed request for judicial notice. The 

documents for which judicial notice is requested are public records, including publicly recorded 

documents and court filings in related cases. See Fed. R. Evid. 201; Harris v. Cty. of Orange, 682 

F.3d 1126, 1132 (9th Cir. 2012); Olmstead v. ReconTrust Co., 852 F. Supp. 2d 1318, 1321 (D. 

Or. 2012). 

II. MS. PRADO’S STANDING 

“Standing is the threshold issue of any federal action . . . .” Employers-Teamsters 

Local Nos. 175 & 505 Pension Trust Fund v. Anchor Capital Advisors, 498 F.3d 920, 923 

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(9th Cir. 2007). Article III standing requires a plaintiff to satisfy three conditions: (1) the plaintiff 

must suffer a concrete and particularized “injury in fact;” (2) the injury and conduct complained 

of must be causally connected, and the injury must be traceable to the defendant’s challenged 

actions; and (3) the injury must be “likely” to be redressed by resolution favorable to the plaintiff. 

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992). At this initial stage of litigation, it 

is enough for a plaintiff to allege and not prove these three elements. See id. at 561. 

Ms. Prado’s signature appears on the deed of trust and the mortgage loan was 

issued to her. Compl. ¶ 10, ECF No. 1-2; Req. J. Not. Ex. 1, ECF No. 8-1. She also resided in 

the property. Compl. ¶ 10. But Prado quitclaimed her interest in the property to Edgar Martinez 

in May 2012. Req. J. Not. Ex. 6, ECF No. 8-2. These allegations, assumed true, are insufficient 

to establish she suffered a redressable injury attributable to the defendants’ actions, for example 

whether she participated in any loan modification applications or lost any property interest upon 

foreclosure in July 2013. Her claims are dismissed with leave to amend. 

III. GENERAL PLAUSIBILITY 

“Establishing the plausibility of a complaint’s allegations is a two-step process that 

is ‘context-specific’ and ‘requires the reviewing court to draw on its judicial experience and 

common sense.’” Eclectic Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 995–96 

(9th Cir. 2014) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). “First, a court should 

‘identif[y] pleadings that, because they are no more than conclusions, are not entitled to the 

assumption of truth.’” Id. at 996 (quoting Iqbal, 556 U.S. at 679). “Then, a court should ‘assume 

the[ ] veracity’ of ‘well pleaded factual allegations” and ‘determine whether they plausibly give 

rise to an entitlement to relief.’” Id. (quoting Iqbal, 556 U.S. at 679). “[A] court must take the 

allegations as true, no matter how skeptical the court may be. The sole exception to this rule lies 

with allegations that are sufficiently fantastic to defy reality as we know it: claims about little 

green men, or the plaintiff’s recent trip to Pluto, or experiences in time travel.” Iqbal, 556 U.S. 

at 696. 

Here, the complaint alleges Flagstar prolonged the foreclosure process without the 

intent to fairly consider the plaintiffs’ applications for loan modifications. It alleges Flagstar did 

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this because it wanted to divest itself of plaintiffs’ loan after the value of their property increased 

to sufficiently offset the costs and fees that would accumulate. Although perhaps unlikely, at this 

stage the court must assume these allegations are true, as they are not mere legal conclusions. To 

the extent this result is inconsistent with Morrison v. Wachovia Mortgage Corp., No. 11-7948, 

2012 WL 8676137 (C.D. Cal. Mar. 12, 2012), that decision is not persuasive here.1

IV. MISREPRESENTATION AND FALSE PROMISE 

A. Specificity 

“In alleging fraud or mistake, a party must state with particularity the 

circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a 

person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b). To meet the Rule 9(b) standard, a 

pleading must “‘be specific enough to give defendants notice of the particular misconduct . . . so 

that they can defend against the charge and not just deny that they have done anything wrong.’” 

Sanford v. MemberWorks, Inc., 625 F.3d 550, 558 (9th Cir.2010) (quoting Kearns v. Ford Motor 

Co., 567 F.3d 1120, 1124 (9th Cir. 2009)) (alteration in original). Normally this standard requires 

allegations of “the time, place, and specific content of the false representations as well as the 

identities of the parties to the misrepresentation.” Id. (quoting Edwards v. Marin Park, Inc., 

356 F.3d 1058, 1066 (9th Cir. 2004)) (quotation marks omitted). 

Federal courts have on occasion applied a more lenient standard to fraud claims 

under Rule 9(b). For example, when a claimant “cannot be expected to have personal knowledge 

of the relevant facts,” the particularity requirement may be relaxed. Id. (quoting Neubronner v. 

Milken, 6 F.3d 666, 672 (9th Cir. 1993)). This may be the case for “matters within the opposing 

party’s knowledge.” Neubronner, 6 F.3d at 672. 

In addition, “Rule 9(b) may not require [the plaintiff] to allege, in detail, all facts 

supporting each and every instance of false testing over a multi-year period.” U.S. ex rel. Lee v. 

SmithKline Beecham, Inc., 245 F.3d 1048, 1051 (9th Cir. 2001). District courts in this circuit and 

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 In an effort to streamline resolution of first motions to dismiss in cases where the parties 

have counsel, when the court is granting leave to amend it is adopting a shortened form of order 

consistent with the order issued here. 

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others have held, “[w]here fraud allegedly occurred over a period of time . . . , Rule 9(b)’s 

requirement that the circumstances of fraud be stated with particularity are less stringently 

applied.” United States v. Hempfling, 431 F. Supp. 2d 1069, 1075 (E.D. Cal. 2006) (citing 

Fujisawa Pharm. Co., Ltd. v. Kapoor, 814 F. Supp. 720, 726 (N.D. Ill. 1993)); U.S. ex rel. 

Pogue v. Diabetes Treatment Centers of Am., Inc., 238 F. Supp. 2d 258, 268 (D.D.C. 2002). 

The complaint here is sufficiently specific. Although it omits details about the 

identities of those who made each specific statement, it details the alleged misrepresentations 

themselves, which were numerous, repeated, and spread over several months. It is also 

reasonable to expect Flagstar to have knowledge of who made these misrepresentations and 

when. 

B. Misrepresentation and Damages 

Whatever granular differences separate claims of intentional misrepresentation, 

negligent misrepresentation, and false promise fraud, each requires the plaintiff allege and prove 

that the defendant made a misrepresentation and that the plaintiff suffered damages, among other 

elements. See, e.g., Lazar v. Super. Ct., 12 Cal. 4th 631, 638 (1996); West v. JPMorgan Chase 

Bank, N.A., 214 Cal. App. 4th 780, 792 (2013); Beckwith v. Dahl, 205 Cal. App. 4th 1039, 

1059-60 (2012). The defendants challenge the complaint’s allegations with respect to these two 

elements. 

First, the defendants argue the complaint includes no allegation of a 

misrepresentation, because “[t]he Martinezes do not allege they were promised a modification. 

Instead, they emphasize that Flagstar told them it would consider them for a modification if they 

were in default.” Mot. Dismiss at 6, ECF No. 007-1 (emphasis in original). This argument 

misreads the complaint, which alleges the defendants never intended to consider an application 

for a loan modification and did not consider the plaintiffs’ applications. 

Second, “[f]raudulent representations which work no damage cannot give rise to 

an action at law. A ‘complete causal relationship’ between the fraud or deceit and the plaintiff's 

damages is required.” Williams v. Wraxall, 33 Cal. App. 4th 120, 132 (1995) (quoting Garcia v. 

Super. Ct., 50 Cal.3d 728, 737 (1990)) (other citations and quotation marks omitted). “‘Damage 

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to be subject to a proper award must be such as follows the act complained of as a legal 

certainty.’” Goehring v. Chapman Univ., 121 Cal. App. 4th 353, 364 (2004) (quoting Agnew v. 

Parks, 172 Cal. App. 2d 756, 768 (1959)). Here, the complaint alleges the plaintiffs would have 

avoided a lengthy, distressing, and costly application process and would have maintained 

possession of their home had the defendants fairly considered their applications for loan 

modifications. These factual allegations suffice for purposes of this motion. 

V. NEGLIGENCE 

A negligence claim has a two-year statute of limitations. Cal. Civ. Proc. Code 

§ 335.1; Sullivan v. JP Morgan Chase Bank, NA, 725 F. Supp. 2d 1087, 1094 (E.D. Cal. 2010). 

The statute of limitations does not begin to run until a claim accrues. Cal. Civ. Proc. Code § 312. 

A claim accrues “when the cause of action is complete with all of its elements.” Norgart v. 

Upjohn Co., 21 Cal. 4th 383, 397 (1999). “When damages are an element of a cause of action, 

the cause of action does not accrue until the damages have been sustained. Mere threat of future 

harm, not yet realized, is not enough.” City of Vista v. Robert Thomas Securities, Inc., 

84 Cal.App.4th 882, 886 (2000). 

A trustee’s deed upon sale was recorded on July 18, 2013. Req. J. Not. Ex. 7, ECF 

No. 8-2. This action was filed on July 27, 2015. Compl. at 1. The plaintiffs argue their damages 

were not fully realized until early August 2013, when they were forced to move out of their home. 

Opp’n at 7–8, ECF No. 9. This argument contradicts the complaint. See Compl. ¶ 10 (the 

plaintiffs left their home in July 2013). The negligence claim is dismissed with leave to amend, if 

plaintiffs are able to amend. 

VI. INTENTIONAL INFLICTION OF EMOTIONAL DISTRESS 

“Causes of action for . . . intentional infliction of emotional distress are governed 

by the two-year statute of limitations set forth in Code of Civil Procedure section 335.1.” 

Pugliese v. Super. Ct., 146 Cal. App. 4th 1444, 1450 (2007). For the same reasons described in 

the previous section, the complaint does not include sufficient factual allegations to show the 

claim accrued within the two-year limitations period. The claim for intentional infliction of 

emotional distress is dismissed with leave to amend. 

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VII. HOMEOWNER’S BILL OF RIGHTS 

The purpose of the California Homeowner’s Bill of Rights (HBR) “is to ensure 

that, as part of the nonjudicial foreclosure process, borrowers are considered for, and have a 

meaningful opportunity to obtain available loss mitigation options, if any, offered by or through 

the borrower’s mortgage servicer, such as loan modifications or other alternatives to foreclosure.” 

Cal. Civ. Code § 2923.4(a). But the HBR does not “require a particular result of that process.” 

Id.

“If a borrower submits a complete application for a first lien loan modification . . . 

a borrower’s mortgage servicer . . . shall not record a notice of default or notice of sale, or 

conduct a trustee’s sale, while the complete first lien loan modification application is pending.” 

Cal. Civ. Code § 2923.6(c). 

On May 24, 2013, Flagstar sent the plaintiffs a letter denying their application for 

a loan modification because they had excessive obligations and did not meet investor 

requirements. Compl. ¶ 23. The plaintiffs allege these reasons were “false” because there was no 

“investor” and because Flagstar had known about their obligations throughout their application 

process, but had told them they qualified for a loan modification. Id. The plaintiffs also 

submitted more complete applications for loan modifications between May 2013 and July 2013. 

Compl. ¶ 24. But the defendants nonetheless summarily denied their applications for 

incompleteness, id., and sold the property in a foreclosure sale on July 9, 2013, id. ¶ 25. The 

complaint also alleges in general that the defendants never actually considered their applications. 

The complaint therefore states an HBR claim. 

The HBR also provides that a mortgage servicer is not 

obligated to evaluate applications from borrowers who have already 

been evaluated or afforded a fair opportunity to be evaluated for a 

first lien loan modification prior to January 1, 2013, or who have 

been evaluated or afforded a fair opportunity to be evaluated 

consistent with the requirements of this section, unless there has 

been a material change in the borrower’s financial circumstances 

since the date of the borrower’s previous application and that 

change is documented by the borrower and submitted to the 

mortgage servicer. 

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Cal. Civ. Code § 2923.6(g). Although the plaintiffs allege their previous applications were 

denied, they allege that the defendants never fairly considered their applications. For this reason, 

taking the pleadings as true, it cannot be said they were “evaluated or afforded a fair opportunity 

to be evaluated for a first lien loan modification.” Id. § 2923.4(a). 

VIII. UNFAIR COMPETITION LAW 

To have standing under the California Unfair Competition Law (UCL), Cal. Bus. 

& Prof. Code § 17200 et seq., a plaintiff must have “suffered injury in fact” and “lost money 

property.” Cal. Bus. & Prof. Code § 17204. Jenkins v. JP Morgan Chase Bank, N.A., 

216 Cal. App. 4th 497, 521 (2013). The plaintiffs allege the loss of fees, interest, and their home. 

These allegations suffice to supply them standing under the UCL. 

“To bring a UCL claim, a plaintiff must show either an (1) ‘unlawful, unfair, or 

fraudulent business act or practice,’ or (2) ‘unfair, deceptive, untrue or misleading advertising.’” 

Lippitt v. Raymond James Fin. Servs., Inc., 340 F.3d 1033, 1043 (9th Cir. 2003) (quoting 

Cal. Bus. & Prof. Code § 17200). Because the statute is phrased in the disjunctive, a practice may 

be unfair or deceptive even if it is not unlawful, or vice versa. Id. (citing Cel-Tech Commc’ns., 

Inc. v. L.A. Cellular Tel. Co., 20 Cal.4th 163, 180 (1999)). Here, because the complaint states a 

claim for misrepresentation and violation of the HBR, it also states a claim under the UCL. 

IX. CONCLUSION 

Ms. Prado’s claims are DISMISSED with leave to amend. The claims for 

negligence and intentional infliction of emotional distress otherwise are DISMISSED with leave 

to amend. In all other respects, the motion is DENIED. A first amended complaint shall be filed 

within twenty-one days of the date this order is filed. 

This order resolves ECF No. 7. 

IT IS SO ORDERED. 

DATED: January 6, 2016. 

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