Tawfik v. Select Portfolio Servicing, Inc.

Background

Hussein and Heidi Tawfik purchased property in Mountain View, California, in 2006 and financed it through a deed of trust and promissory note. After an earlier bankruptcy discharged the loan debt without reaffirmation, they filed a Chapter 11 bankruptcy case in 2014. The bankruptcy court approved a stipulation and later confirmed a plan stating that the Tawfiks owed U.S. Bank $1,029,026.46 at 4% interest, with monthly principal-and-interest payments of $4,300.70, plus a tax-impound amount, through August 1, 2047.

Select Portfolio Servicing, Inc. serviced the loan. Beginning in March 2016, the monthly statements showed a principal-and-interest payment of $4,370.89 rather than the $4,300.70 amount stated in the stipulation and confirmed plan. The Tawfiks later concluded that they had been overcharged, stopped making payments in October 2019, and filed this lawsuit in March 2020.

The complaint alleged breach of contract, fraud, declaratory relief, and unfair business practices under California’s Unfair Competition Law. The fraud claim was based on monthly-statement language saying that Select Portfolio Servicing furnished information to consumer-reporting agencies and warning that negative information could be reported if the borrowers failed to meet the loan terms. The Tawfiks contended that defendants did not report their payments and that they had relied on the statements.

Summary-Judgment Standard and Evidence

The court observed that the Tawfiks submitted no factual evidence with their opposition to summary judgment, relying instead on allegations in their amended complaint and a declaration from their lawyer. The court stated that allegations in an unverified complaint and legal conclusions from counsel cannot establish a genuine dispute of material fact. The court also struck the lawyer’s declaration because it contained only legal argument rather than factual evidence.

Breach of Contract

The court rejected defendants’ statute-of-limitations argument. Applying the continuous-accrual rule previously adopted in the case, the court concluded that claims concerning monthly overcharges occurring on or after March 25, 2016—four years before the complaint was filed—were timely.

The court also rejected summary judgment on the argument that the payment increase was authorized by the contract. The bankruptcy stipulation allowed adjustments at the time of confirmation based on the total debt, but the confirmed plan did not adjust the $4,300.70 principal-and-interest payment or the basis for calculating it. The record showed that defendants increased the principal-and-interest payment before March 18, 2016, but did not show that the adjustment was made at the time contemplated by the stipulation and confirmed plan. The court therefore found sufficient evidence for a reasonable factfinder to decide whether defendants breached the agreement.

Defendants also argued that the Tawfiks could not pursue the contract claim because they stopped making payments in October 2019. The court noted that defendants did not contend the Tawfiks had failed to perform before that date, while the claimed damages reached back two years earlier. Defendants had not shown that the later failure to pay justified summary judgment on the entire contract claim.

Fraud

The court treated the fraud theories as intentional misrepresentation and false promise because the Tawfiks did not identify a different theory in their opposition. For a false-promise claim, the plaintiffs needed evidence that defendants intended to deceive or induce them to act when the statements were made. The court found no evidence that defendants included the credit-reporting language intending to induce the Tawfiks to make payments, improve their credit, or give up other opportunities to build credit. Because mere nonperformance does not establish fraudulent intent, the court granted summary judgment on the false-promise theory.

The court likewise granted summary judgment on intentional misrepresentation. The record was silent about why defendants failed to report the payments, and no reasonable factfinder could conclude on the submitted record that defendants intended to defraud the Tawfiks.

Because the court raised the intent-to-deceive issue itself, it allowed the Tawfiks to submit, by September 6, 2021, a brief and supporting evidence if they had a good-faith basis to claim that a genuine factual dispute existed. The court stated that it would notify defendants if a response was required.

Declaratory Relief and Unfair Business Practices

The declaratory-relief claim was based on the breach-of-contract claim. Because summary judgment was denied on the contract claim, the court denied summary judgment on the declaratory-relief claim as well.

The unfair-business-practices claim was based on both the contract and fraud theories. The court denied summary judgment to the extent the claim was based on breach of contract, but granted summary judgment to the extent it was based on fraud.

Disposition

The court granted defendants’ motion for summary judgment in part and denied it in part. It granted the motion as to the fraud claim and the unfair-business-practices claim based on fraud. It denied the motion as to the declaratory-relief claim, breach-of-contract claim, and unfair-business-practices claim based on breach of contract. The court vacated the scheduled hearing and stated that the order disposed of the summary-judgment motion.