NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS APR 3 2017
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
1617 WESTCLIFF LLC, No. 15-55831
Plaintiff-Appellant, D.C. No.
8:14-cv-01941-JVS-DFM
v.
WELLS FARGO BANK N.A.; WELLS MEMORANDUM *
FARGO BANK N.A., as Trustee for the
Registered Holders of Credit Suisse First
Boston Security Corp., Commercial
Mortgage Pass Through Certificates Series
2004-C3; TORCHLIGHT LOAN
SERVICES, LLC; PNC BANK N.A.,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
James V. Selna, District Judge, Presiding
Argued and Submitted March 7, 2017
Pasadena, California
Before: REINHARDT, TASHIMA, and NGUYEN, Circuit Judges.
Plaintiff 1617 Westcliff LLC (“Westcliff”) appeals the district court’s order
dismissing the first amended complaint without leave to amend. We have
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
jurisdiction pursuant to 28 U.S.C. § 1291. Reviewing the dismissal de novo, see
Johnson v. Fed. Home Loan Mortg. Corp., 793 F.3d 1005, 1007 (9th Cir. 2015),
and the denial of leave to amend for abuse of discretion, see Ebner v. Fresh, Inc.,
838 F.3d 958, 963 (9th Cir. 2016), we affirm in part, reverse in part, and remand.
1. Assuming an agreement to negotiate can be enforceable in at least some
circumstances,1 Westcliff’s claims for breach of the Pre-Negotiation Agreement
(“PNA”) and its implied covenant of good faith and fair dealing fail because the
PNA was an illusory bargain. The PNA provides that defendants “may conduct
discussions or negotiations” with Westcliff but “neither [the PNA] nor
[defendants’] participation in any negotiations . . . creates any express or implied
obligations on the part of [defendants],” who could “discontinue negotiations at
1 California law is “unsettled” on this point. Vestar Dev. II, LLC v. Gen.
Dynamics Corp., 249 F.3d 958, 960–61 (9th Cir. 2001) (noting “the possibility that
agreements to negotiate may be unenforceable as a matter of law in California”).
Compare Copeland v. Baskin Robbins U.S.A., 117 Cal. Rptr. 2d 875, 880 (Ct. App.
2002) (“[W]e see no reason why in principle the parties could not enter into a
valid, enforceable contract to negotiate the terms of [an] agreement.”), with
Daniels v. Select Portfolio Servicing, Inc., 201 Cal. Rptr. 3d 390, 414 (Ct. App.
2016) (“[A]ppellants contend the contract was not missing any essential terms
because it was not itself a modification agreement, ‘but rather an agreement to
modify’ under which ‘a new agreement would have issued’ had respondents
performed. But that argument does not save appellants’ breach of contract claim,
as such an agreement to agree is not enforceable.”).
2
any time . . . without any liability or obligation” (emphasis added).2 Westcliff, in
contrast, immediately provided consideration for the PNA by agreeing that it
“possess[ed] no claim against [defendants]” even though, Westcliff alleged, it had
an existing “claim for $10,000 of insurance funds that [defendants] had received as
a result of property damage to the building’s signage.”3 See Small v. Fritz Cos., 65
P.3d 1255, 1258 (Cal. 2003) (“Forbearance—the decision not to exercise a right or
power—is sufficient consideration to support a contract . . . .”).
“A contract is unenforceable as illusory when one of the parties has the
unfettered or arbitrary right to modify or terminate the agreement or assumes no
obligations thereunder.” Harris v. Tap Worldwide, LLC, 203 Cal. Rptr. 3d 522,
531 (Ct. App. 2016). Westcliff’s inability to enforce an illusory agreement
forecloses its claims for breach of the PNA and the implied covenant of good faith
and fair dealing, see Bustamante v. Intuit, Inc., 45 Cal. Rptr. 3d 692, 704 (Ct. App.
2006) (breach of contract); Racine & Laramie, Ltd. v. Dep’t of Parks &
2At Defendants’ request, the district court took judicial notice of the PNA
and other loan- and foreclosure-related documents to resolve the motion to dismiss.
Because Westcliff did not object, we consider these documents as well.
3 Defendants argue that under the deed of trust Westcliff’s default
extinguished its right to the insurance proceeds, but that depends on when the
casualty loss occurred and the proceeds were to be distributed. In any event,
Westcliff relinquished all of its claims against defendants under the PNA, which
was sufficient to establish Westcliff’s consideration regardless of whether any such
claims were apparent. See Papadakos v. Soares, 170 P. 1114, 1114 (Cal. 1918).
3
Recreation, 14 Cal. Rptr. 2d 335, 339 (Ct. App. 1992) (breach of implied
covenant), both of which the district court properly dismissed.
2. Although the PNA was unenforceable, Westcliff’s claims for fraud and
misrepresentation based on defendants’ pre-PNA statements may be actionable.
See Aceves v. U.S. Bank, N.A., 120 Cal. Rptr. 3d 507, 515, 518 (Ct. App. 2011)
(permitting fraud claim based on lender’s “promise to negotiate in an attempt to
reach a mutually agreeable loan modification”).
A. We agree with the district court that Westcliff failed to plead fraud with
sufficient particularity. See Fed. R. Civ. P. 9(b). Under Rule 9(b), a plaintiff
“must allege ‘the who, what, when, where, and how of the misconduct charged,’
including what is false or misleading about a statement, and why it is false.”
United States ex rel. Swoben v. United Healthcare Ins. Co., 848 F.3d 1161, 1180
(9th Cir. 2016) (internal citations omitted). Westcliff does not identify the person
at either Wells Fargo or the loan servicer who promised that defendants would
discuss loan servicing modifications, the person at Westcliff to whom this promise
was made, or the details of when, where, and how this communication took place.
Although Westcliff “need not allege ‘a precise time frame,’ or ‘describe in detail a
single specific transaction,’” id. (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th
Cir. 1997)), its allegations “must be ‘specific enough to give defendants notice of
the particular misconduct which is alleged to constitute the fraud charged so that
4
they can defend against the charge and not just deny that they have done anything
wrong.’” Id. (quoting Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir.
2001)). This is particularly important here given that the PNA itself does not
obligate defendants to discuss anything.
Westcliff’s allegations also do not explain what was false about defendants’
alleged promise to negotiate. Westcliff alleges only that defendants “never had
any discussions with [it].” Westcliff fails to allege that defendants promised to
begin negotiations unilaterally or that they refused or ignored requests to
negotiate.4 Westcliff’s allegations are consistent with defendants’ representation in
the PNA that they were “agreeable to participate in discussions.”
B. The district court abused its discretion in dismissing Westcliff’s fraud-
based claims pursuant to Rule 9(b) without granting leave to amend. In Westcliff’s
opposition to the motion to dismiss the first amended complaint and again at the
hearing, Westcliff requested leave to amend to add specificity to its fraud
allegations. The district court asked counsel for Westcliff, “Weren’t you on notice
in the last pleading of this precise problem with the fraud-based theories?”
However, the district court had dismissed the fraud-based claims in the original
4 In its negligence claim, Westcliff alleges that defendants “refus[ed] to
engage in discussions” to modify the loan servicing, but this allegation appears to
relate to their conduct before their alleged promise to negotiate.
5
complaint on the ground that Westcliff’s “argument regarding justifiable reliance”
was “contradictory to the [PNA’s] written terms.”
The order dismissing the original complaint, by not addressing defendants’
Rule 9(b) argument other than to set forth the relevant legal standard, gave
Westcliff no notice that the district court agreed that the fraud allegations lacked
particularity. Westcliff should have at least one opportunity to correct this
deficiency. See Fed. R. Civ. P. 15(a)(2); Lopez v. Smith, 203 F.3d 1122, 1127 (9th
Cir. 2000) (en banc) (“[A] district court should grant leave to amend . . . unless it
determines that the pleading could not possibly be cured by the allegation of other
facts.” (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995))); see also
Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1108 (9th Cir. 2003) (“[D]ismissals
for failure to comply with Rule 9(b) should ordinarily be without prejudice.”).
3. Because the PNA was unenforceable, the district court properly
dismissed Westcliff’s claim for rescission and restitution. See Charles Brown &
Sons v. White Lunch Co., 268 P. 490, 492 (Cal. Ct. App. 1928) (“[B]efore there can
be any ‘rescission,’ properly so called, there must be a contract completely formed
and in force, or at least provisionally binding on the parties.”). To the extent
Westcliff sought restitution based on fraudulent inducement or lack of
6
consideration, its claim was in essence quasi-contract or unjust enrichment,5 see
Richter v. Union Land & Stock Co., 62 P. 39, 40 (Cal. 1900), which Westcliff
raised in a separate cause of action.
4. To the extent Westcliff’s unjust enrichment claim was based on
fraudulent inducement, the district court properly dismissed it for failure to plead
with particularity but erred in denying leave to amend. The district court erred in
dismissing Westcliff’s unjust enrichment claim to the extent it was based on lack
of consideration. Although “a quasi-contract action for unjust enrichment does not
lie where . . . express binding agreements exist and define the parties’ rights,” Cal.
Med. Ass’n, Inc. v. Aetna U.S. Healthcare of Cal., Inc., 114 Cal. Rptr. 2d 109, 125
(Ct. App. 2001), the PNA was unenforceable.
As an alternative ground for affirmance, defendants argue that they “were
entitled to undertake each action complained of by [Westcliff]” under the note,
deed of trust, and other agreements related to the loan. They are mistaken.
5 The district court stated “that unjust enrichment is a remedy rather than a
claim, and that the corresponding claim is quasi-contract.” Although some
California courts do not recognize a claim for unjust enrichment, see, e.g., Durell
v. Sharp Healthcare, 108 Cal. Rptr. 3d 682, 699 (Ct. App. 2010), others, including
this court, treat it as an equitable cause of action with restitution as a remedy. See
Berger v. Home Depot USA, Inc., 741 F.3d 1061, 1070 (9th Cir. 2014) (construing
California law); see also Ghirardo v. Antonioli, 924 P.2d 996, 1003 (Cal. 1996)
(“[A]n individual may be required to make restitution if he is unjustly enriched at
the expense of another.”).
7
Westcliff alleged that in exchange for defendants’ promise to “engage in
discussions . . . [regarding] use of the reserve accounts and withholding of late
payments,” it agreed to the terms of the PNA, “allowing defendants to conduct
appraisals, environmental assessments, and other property evaluations, and making
payments thereunder.” As defendants “had no intention of engaging in good faith
negotiations with [Westcliff],” their purpose in extracting these concessions was to
determine “if the property had substantial equity,” and if so, they would “keep
[Westcliff] in default so they could foreclose on the property and obtain the full
principal and interest on its loan, additional interest, pre-payment penalties and
fees funded by [Westcliff’s] substantial equity in the property.”
The deed of trust did not authorize defendants to conduct appraisals,
environmental site assessments, and other evaluations of the property without first
risking the time and legal expense of dispossessing Westcliff.6 The PNA gave
them a risk-free way to determine whether foreclosure would be more profitable
than a loan modification while Westcliff, in default, incurred additional fees. The
PNA also provided that Westcliff was liable for “all applicable legal fees, costs,
and expense[s] incurred by Torchlight in connection with the negotiation of [the
6 Defendants’ right under the deed of trust “to enter and inspect” the
property “at all reasonable times” was not tantamount to the PNA’s requirement
that Westcliff “cooperate” with defendants “to allow [them] to conduct
environmental site assessments, site inspections, structural studies, appraisals and
other evaluations of the property.”
8
PNA].” This was in addition to any fees Westcliff owed under the loan documents
due to its default.
5. Westcliff’s claim for unfair competition, Cal. Bus. & Prof. Code § 17200
et seq., required compliance with Rule 9(b) because it was based on defendants’
alleged fraud. See Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009).
The district court properly dismissed the claim but erred in denying leave to
amend.
6. “[A]s a general rule, 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.” Nymark v.
Heart Fed. Sav. & Loan Ass’n, 283 Cal. Rptr. 53, 56 (Ct. App. 1991). There is
little consensus among California’s intermediate appellate courts whether, under
certain circumstances, a lender has a duty of care to individual borrowers in
discussing home loan modifications. Compare Daniels v. Select Portfolio
Servicing, Inc., 201 Cal. Rptr. 3d 390, 420 (Ct. App. 2016) (concluding lender had
duty of care to homeowner with respect to the loan modification process), Alvarez
v. BAC Home Loans Servicing, L.P., 176 Cal. Rptr. 3d 304, 306 (Ct. App. 2014)
(concluding lenders owed homeowners “a duty to exercise reasonable care in the
review of their loan modification applications once they had agreed to consider
them”), and Jolley v. Chase Home Fin., LLC, 153 Cal. Rptr. 3d 546, 568, 572 (Ct.
9
App. 2013) (holding that bank, as “active participant in a home construction
enterprise,” may have duty “to deal reasonably with borrowers in default to try to
effectuate a workable loan modification”), with Lueras v. BAC Home Loans
Servicing, LP, 163 Cal. Rptr. 3d 804, 820 (Ct. App. 2013) (concluding that “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” but
suggesting that a lender would owe a duty of care if it “place[d] the borrower in a
position creating a need for a loan modification”), and Ragland v. U.S. Bank, 147
Cal. Rptr. 3d 41, 63 (Ct. App. 2012) (holding that bank had no duty of care to
borrower even when it “told [her] not to make her [monthly] loan payment in order
to be considered for a loan modification”).
A lender’s duty of care in considering a loan modification, to the extent it
exists, arises from policy preferences expressed in consumer and homeowner
protection statutes. See Jolley, 153 Cal. Rptr. 3d at 571, 573 (citing federal and
state “ameliorative efforts . . . directed primarily at aiding resident homeowners at
risk of losing their homes” as “set[ting] forth policy considerations that should
affect the assessment whether a duty of care was owed” in discussing loan
modifications). These statutes do not apply to commercial real estate loans. Cf.
Johnson v. Wells Fargo Home Mortg., Inc., 635 F.3d 401, 421 (9th Cir. 2011)
(holding that the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq.,
10
does not apply to commercial or business loans such that it would give rise to a
state law duty of care). Therefore, Westcliff’s theory of negligence fails as a
matter of law. The district court properly dismissed it without leave to amend.
Each side shall bear its own costs.
AFFIRMED in part, REVERSED in part, and REMANDED.
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