Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_09-cv-04152/USCOURTS-cand-4_09-cv-04152-1/pdf.json

Nature of Suit Code: 371
Nature of Suit: Truth in Lending
Cause of Action: 28:1332 Diversity-Fraud

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United States District Court

For the Northern District of California

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

MARIKA HAMILTON,

Plaintiff,

 v.

WELLS FARGO BANK, N.A.,

Defendant. /

No. 09-04152 CW

ORDER GRANTING

DEFENDANT’S

MOTION TO DISMISS

AND DENYING

DEFENDANT’S

MOTION TO STRIKE

Marika Hamilton brings this class action against Wells Fargo

Bank alleging violations of the Truth in Lending Act (TILA), 15

U.S.C. §§ 1601, et seq., violations of California’s Unfair

Competition Law, Cal. Bus. & Prof. Code §§ 17200, et seq. and

breach of contract. Plaintiff alleges that Defendant illegally

suspended and reduced credit limits on her home equity line of

credit (HELOC) as well as those of other borrowers across the

country. Defendant moves to dismiss all of Plaintiff’s claims

except for her breach of contract claim. Defendant also moves to

strike various portions of Plaintiff’s complaint. Plaintiff

opposes the motion. Having read all of the papers submitted by the

parties, the Court grants Defendant’s motion to dismiss and denies

its motion to strike.

Case 4:09-cv-04152-CW Document 39 Filed 04/12/10 Page 1 of 9
United States District Court

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1The Court takes judicial notice of the existence of the Wells

Fargo websites mentioned in Plaintiff’s opposition but not for the

truth of the matters asserted therein. The Court denies

Plaintiff’s request to take judicial notice of various district

court opinions on related subject matter. Judicial notice is not

required to alert the Court to relevant case authority. 

2

BACKGROUND

Plaintiff, a resident of Fort Wayne, Indiana, obtained a HELOC

for $103,600 from Defendant in August, 2008. The HELOC was secured

by her house. In February, 2009, Defendant suspended her account

because of her “derogatory credit.” Compl. ¶ 20; Id., Exh. A. 

Surprised by this notice, Plaintiff checked her credit report and

noticed only one blemish, a $25 late charge, which she then

disputed. After she resolved the late charge issue, she requested

reinstatement of her HELOC account but Defendant refused to do so. 

Defendant told Plaintiff that “the harder she pressed for

reinstatement, the more difficult and painful Wells Fargo would

make the reinstatement process, including a thorough examination of

all of Plaintiff’s accounts, including her business accounts.” 

Compl. ¶ 24. Plaintiff alleges that the suspension of her HELOC

account “negatively impacted the amount of credit she had available

to pay for basic expenses” and it “damaged her credit rating and

increased the cost of credit to her.” Id. at ¶ 26.1

LEGAL STANDARD

A complaint must contain a “short and plain statement of the

claim showing that the pleader is entitled to relief.” Fed. R.

Civ. P. 8(a). Dismissal under Rule 12(b)(6) for failure to state a

claim is appropriate only when the complaint does not give the

defendant fair notice of a legally cognizable claim and the grounds

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on which it rests. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555

(2007). In considering whether the complaint is sufficient to

state a claim, the court will take all material allegations as true

and construe them in the light most favorable to the plaintiff. NL

Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). 

However, this principle is inapplicable to legal conclusions;

“threadbare recitals of the elements of a cause of action,

supported by mere conclusory statements,” are not taken as true. 

Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949-50 (2009)

(citing Twombly, 550 U.S. at 555).

DISCUSSION

I. Plaintiff’s TILA Claims

The first and second counts of Plaintiff’s complaint allege a

violation of 15 U.S.C. § 1647 and its implementing regulation, 12

C.F.R. § 226.5b. TILA applies to consumer transactions where “the

party to whom credit is offered or extended is a natural person,

and the money, property, or services which are the subject of the

transaction are primarily for personal, family, or household

purposes. 15 U.S.C. § 1602(h). TILA specifically exempts from its

scope extension of credit for business or commercial purposes. 15

U.S.C.A. § 1603(1); 12 C.F.R. § 226.3(a). Defendant argues that

these claims should be dismissed because Plaintiff has not alleged

that her HELOC was primarily for personal, family, or household

purposes. 

“In evaluating whether a certain loan was made for commercial

purposes, the emphasis should be on the purpose of the transaction

and not on the categorization of the properties used to secure the

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loan.” Galindo v. Financo Fin., Inc., 2008 WL 4452344, at *4 (N.D.

Cal.). Plaintiff merely alleges that the HELOC was for “basic

expenses.” Compl. ¶ 26. This allegation does not support the

claim that her HELOC was for “personal, family, or household”

purposes. Therefore, the Court concludes that Plaintiff has failed

to state cognizable TILA claims. The Court will grant Plaintiff

leave to amend her TILA claims if she can truthfully allege in a

non-conclusory fashion that the purposes for which she uses her

HELOC accord with 15 U.S.C. § 1602(h).

Defendant also argues that Plaintiff’s first cause of action

should be dismissed because she seeks a remedy unavailable under

TILA, declaratory relief. Defendant cites law from the Eleventh

Circuit which notes that TILA does not “confer upon private

litigants an implied right to an injunction or other equitable

relief such as restitution or disgorgement.” Christ v.

Beneficial Corp., 547 F.3d 1292, 1297-98 (11th Cir. 2008). Christ

does not preclude relief under the Declaratory Judge Act, although

the Act gives the Court discretion as to whether to allow it. 28

U.S.C. § 2201 (“any court of the United States, upon the filing of

an appropriate pleading, may declare the rights and other legal

relations of any interested party seeking such declaration.”). 

Here, the relief sought under the Declaratory Judgment Act is

essentially a declaration of liability under TILA. Plaintiff may

seek the remedy of declaratory relief if she can truthfully allege

her TILA claims.

II. Implied Covenant of Good Faith and Fair Dealing

Plaintiff’s fourth cause of action is for a breach of the

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implied covenant of good faith and fair dealing. Defendant argues

that the Court should analyze this cause of action under Indiana

law because of the choice of law provision in the HELOC contract. 

That provision states, “[T]his agreement and all related documents,

as well as the rights, remedies, and duties of the Bank and the

Borrower(s), shall be governed and interpreted by federal law with

respect to national banks and, to the extent not preempted by

federal law, the laws of the state in which the Property is

located.” Compl., Exh. B. Section two of the HELOC agreement

defines “Property” as the property in which the borrower has given

Wells Fargo a security interest. Id. (“The Security Instrument

gives you a security interest in the property located at the

address shown above (the ‘Property’).”). Plaintiff does not

dispute that her property is located in Fort Wayne, Indiana. 

Rather, she argues that the Court should invalidate the choice of

law provision of the HELOC agreement because “substantial injustice

would result from its enforcement.” Washington Mutual Bank v.

Superior Court, 24 Cal. 4th 906, 918 (2001). Plaintiff claims

that, because the HELOC agreement was an adhesion contract, and

because Indiana law lacks the same consumer protections as

California, application of Indiana law would be substantially

unjust. Although the adhesive nature of a contract is a relevant

factor when determining whether a choice of law clause is valid,

courts also assess whether the provision “was included in the

contract ‘by improper means, such as by misrepresentation, duress,

or undue influence, or by mistake.’” Discovery Bank v. Superior

Court, 134 Cal. App. 4th 886, 896 (2005) (quoting Restatement

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(Second) Conflicts of Law § 187 cmt. b). Here, Plaintiff does not

argue that the choice of law clause is avoidable for fraud, mistake

or any similar ground. Therefore, the Court applies Indiana law to

Plaintiff’s state law claims. 

“Indiana law does not impose a generalized duty of good faith

and fair dealing in every contract.” Hispanic College Fund, Inc.

v. National Collegiate Athletic Ass’n, 826 N.E.2d 652, 658 (Ind.

Ct. App. 2005) See Bob Nicholson Appliance, Inc. v. Maytag Co., 883

F. Supp. 321, 327 (S.D. Ind. 1994); Hamlin v. Steward, 622 N.E.2d

535, 540 (Ind. Ct. App. 1993). Indiana courts will impose such a

duty only if the contract (1) contains ambiguities, (2) expressly

imposes the duty on the parties or (3) pertains to an employment or

insurance matter. Allison v. Union Hosp., Inc., 883 N.E.2d 113,

123 (Ind. Ct. App. 2008). The Indiana Supreme Court explained its

reluctance to extend this duty: 

It is not the province of courts to require a party acting

pursuant to such a[n unambiguous] contract to be

“reasonable,” “fair,” or show “good faith” cooperation. 

Such an assessment would go beyond the bounds of judicial

duty and responsibility. It would be impossible for parties

to rely on the written expressions of their duties and

responsibilities. Further, it would place the court at the

negotiation table with the parties.

First Fed. Sav. Bank of Ind. v. Key Markets, Inc., 559 N.E.2d 600,

604 (Ind. 1990). Because Plaintiff has not shown that the HELOC

contract is ambiguous or pertains to an employment or insurance

matter, the Court concludes that she may not bring her claim for

breach of the covenant of good faith and fair dealing.

III. UCL

Because Indiana, not California, law applies to Plaintiff’s

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state law claims, the Court dismisses her fifth cause of action for

violation of California’s UCL. Having signed a contract in which

Plaintiff agreed to litigate her claims under Indiana law, she

cannot seek protection under California statutes. 

IV. Fraud

Under Indiana law, the elements of fraud are: “(1) a material

representation of a past or existing fact by the party to be

charged that; (2) was false; (3) was made with knowledge or

reckless ignorance of its falsity; (4) was relied upon by the

complaining party; and (5) proximately caused the complaining

party’s injury.” Ruse v. Bleeke, 914 N.E.2d 1, 10 (Ind. Ct. App.

2009). Defendant argues that Plaintiff’s fraud claim fails because

she did not rely on any action of Defendant to her detriment. 

Plaintiff cannot sustain a claim for fraud if her complaint alleges

facts “incapable of showing detrimental reliance.” McCalment v.

Eli Lilly & Co., 860 N.E.2d 884, 896 (Ind. Ct. App. 2007).

Defendant argues that Plaintiff has not alleged that she

actually relied on any statements made by Defendant. Plaintiff

counters that the “Court should consider a good faith extension of

existing law.” She argues that she not be required to demonstrate

reliance because reliance is merely a proxy for causation and here

Defendant’s conduct clearly caused her an injury. Opposition 17. 

The Court will not consider such an extension. Indiana law

requires Plaintiff to allege reliance and Plaintiff has not done

so. Accordingly, the Court dismisses Plaintiff’s sixth cause of

action for fraud. Plaintiff may amend this claim if she can

truthfully allege reliance. 

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V. Motion to Strike

Defendant also moves to strike from Plaintiff’s complaint her

request for statutory damages as a remedy for the alleged TILA

violation. Defendant argues that Plaintiff cannot receive

statutory damages under the relevant statute of TILA, 15 U.S.C.

§ 1640, because the statute that she claims Defendant violated,

§ 1647(c), is not among those enumerated in § 1640(a) for which

damages are available. However, § 1640(a) does not provide an

exhaustive list of TILA violations for which statutory damages are

available. Section 1640(a) specifically discusses the TILA

“disclosure” requirement violations that can provide as the basis

for statutory damages. Plaintiff’s allegations against Defendant

do not concern disclosure requirements. Rather, she alleges that

Defendant failed to have a reasonable belief and factual basis for

suspending her HELOC account, as required under § 1647(c). Nothing

in § 1640(a) precludes a statutory damages remedy for this type of

TILA violation. Therefore, the Court denies Defendant’s motion to

strike Plaintiff’s request for statutory damages.

 Defendant also seeks to strike paragraph ten and the first

sentence of paragraph twelve of the complaint. These allegations

state that Defendant’s actions were unconscionable in light of the

fact that Defendant obtained $25 billion from the federal

government under the Emergency Economic Stabilization Act of 2008. 

These allegations have no bearing on the question of whether

Defendant violated TILA. Accordingly, the Court grants Defendant’s

motion to strike these allegations.

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CONCLUSION

For the foregoing reasons, the Court grants Defendant’s motion

to dismiss and grants in part Defendant’s motion to strike. Docket

No. 23. Plaintiff is given leave to amend her TILA and fraud

claims. However, her claims against Defendant for breaching the

implied covenant of good faith and fair dealing and for violating

the UCL are dismissed with prejudice because amendment would be

futile. Any second amended complaint must be filed within two

weeks from the date of this order. If no second amended complaint

is filed, Defendant must file an answer to the remaining claims

within four weeks from the date of this order. 

IT IS SO ORDERED.

Dated: 4/12/10 

CLAUDIA WILKEN

United States District Judge

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