Boruta v. JPMorgan Chase Bank, N.A.

Background

Mirek and Maria Boruta challenged the April 23, 2019 foreclosure sale of their Berkeley property. They had executed a deed of trust and promissory note in 2004 and, according to the opinion, had been in default since August 2008. JPMorgan Chase Bank, N.A. serviced the loan and became its beneficiary after acquiring Washington Mutual Bank. Quality Loan Service Corporation acted as the foreclosure trustee.

The Borutas alleged that Chase had told them on April 3, 2019 that the foreclosure sale was suspended. They then listed the property for sale, obtained a $1,800,000 short-sale offer, and submitted that offer and an application to Chase. They alleged that Chase and Quality nevertheless conducted a trustee’s sale on April 23, 2019, transferring the property to Chase for $1,890,000. They claimed the sale was not a genuine public auction and that it occurred while their short-sale application was pending.

The Borutas had previously sued the same defendants in an earlier related proceeding. Judge Orrick had dismissed that case but allowed them to amend, while warning that any amended allegations needed a factual basis. Instead, the Borutas voluntarily dismissed that case, filed this action in state court, and later filed a First Amended Complaint in federal court. The new complaint asserted wrongful foreclosure and unfair-business-practices claims against both defendants and negligence against Chase; it omitted an earlier fraud claim against Chase.

Motion to Remand

The Borutas asked the federal court to send the case back to state court, arguing that Quality’s alleged California citizenship defeated diversity jurisdiction. Chase argued that Quality was a nominal defendant—one with no real interest in the dispute whose role was only ministerial—so its citizenship should be disregarded.

The court held that Quality was a nominal defendant. The complaint’s allegations that Quality acted outside its trustee duties were conclusory, and the Borutas did not allege facts showing actual malice. The court concluded that Quality’s foreclosure-related conduct was privileged under California Civil Code sections 47 and 2924(d). It therefore denied the motion to remand. The opinion also noted that the Borutas mentioned, but did not develop, an argument that the amount in controversy was insufficient; the court found that argument meritless because the complaint identified a $1.89 million transaction.

Quality’s Motion to Dismiss

Quality argued, among other things, that the Borutas were barred from disputing that a trustee’s sale occurred because of allegations in their earlier related proceeding. The court found that those earlier allegations showed the Borutas knew a sale was scheduled, but did not necessarily admit that the sale was properly conducted or that it was a genuine sale. The court therefore did not rely on that argument.

The court instead held that Quality’s actions were privileged under California law and that the Borutas had not alleged facts showing malice. It granted Quality’s motion to dismiss and did not reach Quality’s additional argument that the wrongful-foreclosure and unfair-business-practices claims failed to state claims.

Chase’s Motion to Dismiss

The court dismissed the wrongful-foreclosure claim because the Borutas did not plausibly allege an illegal, fraudulent, or willfully oppressive sale. Their claim that the property was sold through a “desk sale” was conclusory, and the alleged sale price below market value, by itself, was not enough to overcome the presumption that a nonjudicial foreclosure sale was conducted regularly and fairly. The court also rejected their reliance on the short-sale application because they did not plausibly allege that they submitted a complete loan-modification application covered by California Civil Code section 2923.6, or that conducting a foreclosure while a short-sale application was pending was actionable under their theory.

The court further found that the Borutas did not plausibly allege prejudice or provide a legal basis for treating the possibility of a short sale as prejudice. They also did not plead a credible tender of the secured debt or facts showing that tender was excused. Tender means offering to pay the secured debt as a condition of challenging a foreclosure sale. The court distinguished a case involving a contractual promise not to foreclose, finding that the Borutas had not alleged a comparable forbearance agreement with Chase. It granted Chase’s motion to dismiss the wrongful-foreclosure claim.

The court also dismissed the negligence claim. The Borutas alleged that Chase mishandled a loss-mitigation application and failed to postpone the sale as promised, but the court found that they had not adequately alleged that Chase owed them a duty of care. Even assuming a duty existed, the court found insufficient allegations of breach, causation, or injury. It granted Chase’s motion to dismiss that claim.

Finally, the court dismissed the unfair-business-practices claim under California’s Unfair Competition Law. That claim was based on alleged violations of other laws, including wrongful foreclosure, negligence, and section 2923.6. Because the Borutas had not stated those underlying claims, the court held that the derivative unfair-business-practices claim also failed and granted Chase’s motion to dismiss it.

Disposition

Judge William H. Orrick denied the Borutas’ motion to remand. He granted Quality’s and Chase’s motions to dismiss with prejudice and dismissed the First Amended Complaint with prejudice. The court concluded that further amendment would be futile because the Borutas had already received an opportunity to amend in the earlier related proceeding and had filed a substantially similar First Amended Complaint here.