SAN JOSE – A federal judge has granted a bank's motion to dismiss several claims of a breach of contract case filed by a homeowner over a bank's reporting of interest on her mortgage for tax purposes.
U.S. District Judge Edward J. Davila of the U.S. District Court for the Northern District of California in the San Jose Division ruled May 24 to grant defendant Flagstar Bank's motion to dismiss several claims of plaintiff Lisa Strugala's suit against it and denied its motion to strike.
Strugala accused Flagstar of intentionally misreporting her mortgage interest when it conveyed her paid and unpaid interest. She alleged between 2007 to 2011, the Form 1098 Flagstar submitted overreported interest.
Strugala alleged this deliberate faux pas stopped her from being able to correctly file her own tax return, made her complete amended tax returns and made her lose out on past valuable deductions. Strugala sought declaratory and injunctive relief and monetary damages.
Strugala filed the lawsuit in 2013 on behalf of herself and others in her situation via two different classes: a damage class and an injunctive class. She sued over allegations of breach of contract, breach of covenant of good faith and fair dealing, violation of 26 U.S.C. section 6050H, violation of the Unfair Competition Law, California Business and Professions Codes section 17200, declaratory relief, injunctive relief and fraud. She later filed a second amended complaint.
Davila granted Flagstar’s motion to dismiss the 6050H complaint. 26 U.S.C. section 6050H focuses on returns relating to mortgage interest.
"Strugala contends that she is not reasserting the claim, but instead preserving for appeal. Thus, the third count for violation of 26 U.S.C. 6050H will again be dismissed without leave to amend,” the ruling states.
Davila also dismissed the plaintiff's request for declaratory and injunctive relief.
As for the remaining claims, Davila granted the motion to dismiss Strugala’s breach of contract claim. The judge pointed out that while the deed of trust is enough to initiate her claim, the specifics when it comes to leave to amend lean more in Flagstar’s favor. For instance, Strugala’s request to amend her breach of contract claim comes five years after her first complaint.
When it comes to the breach of covenant of good faith allegation, the judge also sided with Flagstar. Davila pointed out that the contract doesn’t include factors like a clause on if Flagstar should report mortgage interest whether it’s paid or unpaid. Davila also said the contract is missing a clause that Flagstar actually has a responsibility to not inform Strugala and the class members if it alter its reporting methods.
“The implied covenant of good faith and fair dealing ...‘cannot impose substantive duties or limits on the contracting parties beyond those incorporated in the specific terms of their agreement,’” Davila wrote.
Davila also dismissed the fraud allegation as Strugala failed to claim facts to sufficiently plead the claim. The same held true for her Unfair Competition Law claim.