Sullivan v. Washington Mutual Bank FA et al, No. 3:2009cv02161 - Document 36 (N.D. Cal. 2009)
Court Description: ORDER Granting in Part and Denying in Part 7 17 Defendants JPMorgan and Bank of America's Motions to Dismiss. Signed by Judge Edward M. Chen on 10/23/2009. (emcsec, COURT STAFF) (Filed on 10/23/2009)
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Sullivan v. Washington Mutual Bank FA et al Doc. 36 1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 8 KATY SULLIVAN, 9 11 For the Northern District of California United States District Court 10 No. C-09-2161 EMC Plaintiff, v. WASHINGTON MUTUAL BANK, FA, et al., 12 13 ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS JPMORGAN AND BANK OF AMERICA’S MOTIONS TO DISMISS Docket Nos. 7, 17 Defendants. ___________________________________/ 14 15 Plaintiff Katy Sullivan has filed suit against Defendants Washington Mutual Bank FA 16 (“WaMu”), JPMorgan Chase Bank, Bank of America (“B of A”), and California Reconveyance 17 Company (“CRC”). In her first amended complaint (“FAC”), Ms. Sullivan alleges, inter alia, that 18 she obtained a loan from WaMu to refinance and purchase certain real property; that, in conjunction 19 with this loan, WaMu violated the Truth in Lending Act (“TILA”); and that the current owners of 20 the promissory note and deed of trust are improperly seeking to foreclose on the property. Currently 21 pending before the Court is JPMorgan and CRC’s motion to dismiss, which B of A has joined.1 22 23 I. FACTUAL & PROCEDURAL BACKGROUND Ms. Sullivan initiated this lawsuit in state court. After the case was removed to federal court, 24 JPMorgan and CRC moved to dismiss Ms. Sullivan’s complaint. B of A joined in the request for 25 dismissal. After the briefing on the motion do dismiss was completed, the parties agreed that Ms. 26 27 28 1 WaMu did not file a motion to dismiss, nor did JPMorgan, as the alleged successor of WaMu, file a motion to dismiss contesting the allegations or claims asserted against WaMu. Accordingly, the Court makes no ruling as to (1) the sufficiency or validity of the claims asserted against WaMu and (2) whether JPMorgan should be held liable if WaMu is held liable. Dockets.Justia.com 1 Sullivan could file an amended complaint and that the briefing on the motion to dismiss would be 2 deemed to be applicable to the FAC. See Docket Nos. 21-22 (stipulation and order). 3 4 Sullivan applied for a loan from WaMu to refinance and purchase certain real property. See FAC ¶ 5 9. WaMu promised to provide a 30-year loan with no points or loan fees and with a maximum 6 principal balance of 125% of the initial principal balance. See FAC ¶ 10. However, the actual loan 7 prepared for execution by Ms. Sullivan had different terms, and Ms. Sullivan did not understand or 8 see all of the changes that had been made. See FAC ¶ 11. Some of the differences were that the 9 loan period was extended to 40 years, the maximum principal balance was decreased to 110% of the 10 initial principal balance, and a finance charge of $5,500 was assessed. See FAC ¶ 12. 11 For the Northern District of California United States District Court In her FAC, Ms. Sullivan makes the following allegations. In March and April 2006, Ms. In addition to the above, Ms. Sullivan alleges that, at the time that she entered into the loan 12 with WaMu, WaMu failed to provide her with disclosures about variable rate mortgages, 13 notwithstanding the statement in the TILA Disclosure Statement that she had been given such 14 information. See FAC ¶ 14. Ms. Sullivan further alleges that WaMU violated the terms of the TILA 15 Disclosure Statement, as well as the promissory note, in various ways. For example: 16 • WaMu failed to extend a loan in the disclosed loan amount – either by imposing an interest 17 payment that was paid by the escrow agent or by withholding a certain amount from the loan 18 funds when transmitted to escrow. See FAC ¶ 18. 19 • 20 21 imposed a rate of 1.6% rather than 1.35%. See FAC ¶ 19. • 22 23 During the first full month of the loan prior to the first payment date (i.e., May 2006), WaMu In June 2006, WaMu withdrew from Plaintiff’s account an amount in excess of $6,200 instead of $2,967. See FAC ¶ 20. • In April 2008, WaMu made inaccurate disclosures about the timing of increases in payments. 24 See FAC ¶ 22. 25 Although the above allegations implicate WaMu only, Ms. Sullivan contends that JPMorgan 26 is a proper defendant in the case because, in September 2008, JPMorgan became the owner of the 27 loan at issue when it became WaMu’s successor in interest. See FAC ¶¶ 3, 7, 24. Ms. Sullivan also 28 argues that B of A is a proper defendant because, in March 2009, JPMorgan assigned the loan (more 2 1 specifically, the promissory note and the deed of trust) to B of A. See FAC ¶ 26 & Ex. F 2 (assignment). Finally, Ms. Sullivan asserts that CRC is a proper defendant because it, as the trustee 3 of the deed of trust, initiated foreclosure proceedings on the property at issue in March 2009. See 4 FAC ¶ 25 & Ex. E (notice of default and election to sell). For the Northern District of California United States District Court 5 Based on the above allegations, Ms. Sullivan raises the following claims in her FAC: 6 (1) Rescission pursuant to TILA (against all Defendants except CRC). 7 (2) Violation of California Business & Professions Code § 17200. 8 (3) Quiet title. 9 (4) Declaratory relief. 10 (5) Injunctive relief (against all Defendants except WaMu). 11 (6) Accounting (against all Defendants except CRC). 12 13 As noted above, the currently pending motion to dismiss has been brought by JPMorgan, CRC, and B of A. Each of the six claims is challenged. 14 15 II. A. 16 DISCUSSION CRC As a preliminary matter, the Court notes that, based on the allegations in the FAC, it does not 17 appear that CRC engaged in any wrongdoing itself (as opposed, e.g., to the beneficiary of the deed 18 of trust). Furthermore, at the hearing, Ms. Sullivan indicated that she did not seek any monetary 19 damages against CRC. Ms. Sullivan seems to have sued CRC only because it, as the trustee for the 20 deed of trust, initiated the proceedings for foreclosure, which she seeks to prevent. Because CRC is 21 not alleged to have committed any unlawful act but is nonetheless involved in the foreclosure 22 proceedings, the Court ordered the parties to meet and confer to determine whether they could reach 23 an agreement dismissing CRC with conditions that would ensure against any foreclosure absent B of 24 A direction. This ruling therefore does not address whether or not any of the claims asserted against 25 CRC should be dismissed and focuses instead only on the claims asserted against JPMorgan and B 26 of A. Should the parties not reach a stipulation, the Court will issue a supplemental ruling on CRC. 27 /// 28 /// 3 1 For the Northern District of California United States District Court 2 B. Rescission Ms. Sullivan’s rescission claim has two components. First, she seeks reconveyance of all 3 right, title, or interest to the real property at issue. See FAC ¶ 34. Second, she seeks recovery of at 4 least the finance charges2 that she paid for the loan. See FAC ¶ 34. 5 Because JPMorgan does not appear to have any interest in the property – having assigned the 6 property to B of A – there is nothing for it to reconvey to Ms. Sullivan.3 However, at this point, it is 7 still plausible that JPMorgan is liable for finance charges it received from Ms. Sullivan. See 15 8 U.S.C. § 1635(b) (“When an obligor exercises his right to rescind under subsection (a), he is not 9 liable for any finance or other charge, and any security interest given by the obligor, including any 10 such interest arising by operation of law, becomes void upon such a rescission. Within 20 days after 11 receipt of a notice of rescission, the creditor shall return to the obligor any money or property given 12 as earnest money, down payment, or otherwise, and shall take any action necessary or appropriate to 13 reflect the termination of any security interest created under the transaction.”); Barrett v. JP Morgan 14 Chase Bank, N.A., 445 F.3d 874, 878 (6th Cir. 2006) (“[T]he Act gives the borrower who rescinds 15 an eligible loan transaction the right to void the security interest and the right to recover statutorily 16 identified finance charges incurred in the transaction.”); Semar v. Platte Valley Fed. Sav. & Loan 17 Ass’n, 791 F.2d 699, 702 (9th Cir. 1986) (“Under a TILA rescission, the security interest is 18 dissolved, the lender returns the borrower’s payments, and the borrower returns the loan proceeds, 19 less any ‘finance or other charge.’”); Riopta v. Amresco Residential Mortg. Corp., 101 F. Supp. 2d 20 1326, 1336 (D. Haw. 1999) (“[B]ecause the Court has found rescission appropriate, the Court 21 concludes that Plaintiffs are entitled to recover all finance and interest charges associated with the 22 mortgage.”). 23 24 25 2 26 3 27 28 See 15 U.S.C. § 1605 (defining finance charge). At the hearing, Ms. Sullivan expressed some concern as to who is the current owner of the promissory note and beneficiary of the deed of trust – JPMorgan or B of A. The Court expects that the parties will work together to determine whether this concern is valid. For example, JPMorgan could stipulate that it has no interest in the property and B of A could stipulate that it is the current owner and beneficiary. 4 1 As for B of A, Ms. Sullivan may seek reconveyance because it appears to be the current 2 owner of the promissory note and beneficiary of the deed of trust. Moreover, B of A may be liable 3 for finance charges it received from Ms. Sullivan. 4 Accordingly, the Court shall not dismiss with prejudice Ms. Sullivan’s rescission claim 5 asserted against JPMorgan and B of A. The Court, however, does dismiss the claim without 6 prejudice because the FAC as pled does not make clear (1) which remedies are being sought with 7 respect to which Defendant and (2) to which Defendant Ms. Sullivan paid finance charges. The 8 Court shall give Ms. Sullivan leave to amend to correct these deficiencies consistent with the rulings 9 herein. For the Northern District of California United States District Court 10 The Court notes that, if Ms. Sullivan seeks damages against JPMorgan and B of A based on 11 the alleged TILA violation pursuant to 15 U.S.C. § 1640, then she must include allegations 12 supporting assignee liability. Under 15 U.S.C. § 1641, a civil action “which may be brought against 13 a creditor may be maintained against any assignee of such creditor only if the violation for which 14 such action or proceeding is brought is apparent on the face of the disclosure statement, except 15 where the assignment was involuntary.” 15 U.S.C. § 1641(a) (emphasis added). As the court noted 16 in Miranda v. Universal Fin. Group, Inc., 459 F. Supp. 2d 760 (N.D. Ill. 2006), “[s]ection 1641 17 governs the liability of assignees for violations of TILA,” with “[s]ection 1641(a) set[ting] forth the 18 requirements for awarding statutory damages against an assignee and section 1641(c) set[ting] forth 19 the requirements for ordering rescission of a loan against an assignee”; “[u]nlike a statutory damages 20 claim against an assignee under § 1641(a), a rescission claim against an assignee under § 1641(c) 21 may be brought even if there is no TILA violation apparent on the face of the loan documents.” Id. 22 at 764-65 & n.3. 23 C. 24 Section 17200 In their motion, JPMorgan and B of A make three arguments as to why the § 17200 claim 25 should be dismissed: (1) that a § 17200 claim may be based only upon a pattern of conduct and not a 26 single isolated incident; (2) that Ms. Sullivan has failed to specify the grounds for entitlement to 27 relief; and (3) that Ms. Sullivan lacks standing to bring the claim. 28 5 1 The first argument is without merit. As Ms. Sullivan points out, § 17200 by its terms bars 2 not only unlawful or unfair business practices but also unlawful or unfair business acts. See Cal. 3 Bus. & Prof. Code § 17200 (“As used in this chapter, unfair competition shall mean and include any 4 unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading 5 advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of 6 Division 7 of the Business and Professions Code.”). A California Court of Appeal has specifically 7 explained that, 8 9 11 For the Northern District of California United States District Court 10 12 13 14 [i]n response to the California Supreme Court’s 1988 ruling that a ‘business practice’ under Business and Professions Code section 17200 must encompass more than a single transaction, the Legislature amended the statute in 1992 to provide that “unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice. . . .” The California Supreme Court has interpreted the 1992 amendment as overruling that part of Van De Kamp that interpreted the statute to require more than a single “act.” Accordingly, under the current version of the statute, even a single act may create liability. UFW of Am. v. Dutra Farms, 83 Cal. App. 4th 1146, 1163 (2000). As to the second argument, Ms. Sullivan has pointed to conduct which is either unlawful or 15 unfair – e.g., improperly imposing finance charges, failing to provide disclosures, and improperly 16 initiating foreclosure proceedings. See FAC ¶ 38. However, JPMorgan and B of A do have a point 17 in arguing that it is not clear which conduct is attributable to which Defendant (including WaMu). 18 Ms. Sullivan is therefore ordered to amend her complaint to clarify such, as noted above. 19 Finally, with respect to the third argument, JPMorgan and B of A correctly point out that, 20 pursuant to California Business & Professions Code § 17204, a § 17200 claim must be brought “by a 21 person who has suffered injury in fact and has lost money or property as a result of the unfair 22 competition.” Cal. Bus. & Prof. Code § 17204 (emphasis added); see also Walker v. USAA Cas. Ins. 23 Co., 474 F. Supp. 2d 1168, 1172 (E.D. Cal. 2007) (noting that, “to have standing to assert any UCL 24 claim, Plaintiff must show either prior possession or a vested legal interest in the money or property 25 allegedly lost”). However, as noted above, Ms. Sullivan has alleged at the very least that finance 26 charges were improperly imposed. This would constitute both an injury in fat and a loss of money. 27 With Ms. Sullivan’s amendment, it should be clear whether finance charges were paid to JPMorgan, 28 B or A, both, or any other Defendant (including WaMu). 6 1 2 17200 to seek the requested injunctive relief – to prevent the foreclosure. As noted above, under § 3 17200, a § 17200 claim must be brought “by a person who has suffered injury in fact and has lost 4 money or property as a result of the unfair competition.” Cal. Bus. & Prof. Code § 17204 (emphasis 5 added). In the instant case, no foreclosure has taken place and therefore, it may be argued that Ms. 6 Sullivan has not actually lost any property as a technical matter. On the other hand, it is undisputed 7 that foreclosure proceedings have been initiated which puts her interest in the property in jeopardy. 8 The Court concludes that this fact is sufficient to establish standing. At least one federal court in 9 California has held such. In Rabb v. BNC Mortg., Inc., CV 09-4740 AHM (RZx), 2009 U.S. Dist. 10 11 For the Northern District of California United States District Court This still leaves open, however, the issue of whether Ms. Sullivan has standing under § LEXIS 92061 (C.D. Cal. Sept. 21, 2009), the court stated: 14 Plaintiff has alleged sufficient injury in fact to proceed with her UCL claim. The statute only required that she have ‘suffered injury in fact and [have] lost money or property as a result of unfair competition.’ Plaintiff alleges ‘[a]ll Defendants collectively are now in the process of conducting a wrongful foreclosure sale of Plaintiff’s Property despite having actual knowledge of Plaintiff's valid rescission of the Transaction.’ This is sufficient to allege injury in fact under the UCL. 15 Id. at *7-8 (emphasis added). Moreover, the encumbrance on the deed of trust arguably constitutes a 16 loss of property for Ms. Sullivan. 12 13 17 Finally, it would make little sense to conclude that standing for the § 17200 claim could not 18 arise until the property was actually sold. The point in having the standing requirement for a § 19 17200 claim was 20 21 22 23 24 25 to eliminate the filing of frivolous lawsuits brought to recover attorney’s fees without a corresponding public benefit and the filing of lawsuits on behalf of the public welfare without any accountability to the public. The California voters identified the gateway for these abuses as the “unaffected plaintiff,” which was often the sham creation of attorneys, and expressed their intent [through passing Proposition 64 which became § 17204] “to prohibit private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact under the standing requirements of the United States Constitution. An injury in fact requirement achieves these goals. 26 Annunziato v. eMachines, Inc., 402 F. Supp. 2d 1133, 1138-39 (C.D. Cal. 2005); see also Hall v. 27 Time Inc., 158 Cal. App. 4th 847, 853-54 (2008) (discussing purpose behind Proposition 64/§ 28 17204). In the instant case, it can hardly be said that Ms. Sullivan is unaffected by the foreclosure 7 1 proceedings that have been initiated. The policy concerns underling § 17204 have no application 2 here. 3 In sum, the Court rejects the primary arguments made by JPMorgan and B of A but shall 4 dismiss the § 17200 claim against these companies without prejudice because the FAC as pled does 5 not make clear which conduct is attributable to which Defendant. Ms. Sullivan shall be given leave 6 to amend. 7 D. 8 For the Northern District of California United States District Court 9 Quiet Title Contrary to what JPMorgan and B of A argue, the FAC has been verified , see FAC, Ex. F, and therefore the quiet title claim cannot be dismissed on that basis. See Cal. Code Civ. Proc. § 10 761.020 (providing that “[t]he complaint shall be verified”). However, the quiet title claim against 11 JPMorgan should be dismissed since it does not have or claim any interest in the real property at 12 issue. Section 761.020 requires that a complaint include (1) a “legal description [of the property] 13 and its street address or common designation, if any,” (2) the title of the plaintiff and the basis of the 14 title, (3) “[t]he adverse claims to the title of the plaintiff,” (4) “[t]he date as of which the 15 determination is sought,” and (5) “[a] prayer for the determination of the title of the plaintiff against 16 the adverse claims.” Cal. Code Civ. Proc. § 761.020; see also Newman v. Cornelius, 3 Cal. App. 3d 17 279, 284 (1970) (noting that the purpose of a quiet title action is to determine “all conflicting claims 18 to the property in controversy, and to decree to each such interest or estate therein as he may be 19 entitled to”). Because B of A is the only current owner of the promissory note and beneficiary of the 20 deed of trust, the quiet title claim is properly asserted against it. 21 In short, with respect to the claim of quiet title, the Court grants JPMorgan’s motion to 22 dismiss but denies B of A’s motion. 23 E. 24 Declaratory Relief Ms. Sullivan seeks a declaration that the deed of trust is null and void based on her rescission 25 pursuant to TILA. In their motion to dismiss, JPMorgan and B of A contend that Ms. Sullivan has, 26 in essence, failed to plead a case or controversy. For the reasons discussed above, the Court rejects 27 this argument. 28 8 1 F. For the Northern District of California United States District Court 2 Injunctive Relief JPMorgan and B of A challenge the claim for injunctive relief on the basis that Ms. Sullivan 3 cannot demonstrate that she will likely prevail on any of the causes of action asserted in the 4 complaint. But whether or not Ms. Sullivan will likely prevail on the merits is beside the point. 5 More important is the fact that there is no such thing as a claim for injunctive relief. Injunctive 6 relief is relief only – not a substantive cause of action. At present Ms. Sullivan has not made any 7 request for preliminary or permanent injunctive relief. If and when she does so, the Court can take 8 on the issue of likelihood of success on the merits. Because technically there is no such thing as a 9 claim for injunctive relief, the Court dismisses the claim. This ruling, however, does not bar Ms. 10 Sullivan from seeking injunctive relief pursuant to other claims pled in the complaint as noted 11 above. 12 G. 13 Accounting Finally, JPMorgan and B of A argue that Ms. Sullivan’s accounting claim should be 14 dismissed because Ms. Sullivan has failed to allege a fiduciary relationship with them or that the 15 account is so complicated that an ordinary legal action demanding a fixed sum is impracticable. See 16 5 Witkin Cal. Proc. Plead § 819 (“An action for an accounting is equitable in nature. It may be 17 brought to compel the defendant to account to the plaintiff for money or property, (1) where a 18 fiduciary relationship exists between the parties, or (2) where, even though no fiduciary relationship 19 exists, the accounts are so complicated that an ordinary legal action demanding a fixed sum is 20 impracticable.”). In her opposition, Ms. Sullivan contends that the account here is complicated – 21 “the finance charges to be reimbursed to Plaintiff are dependent upon complex amortization 22 schedules prepared (presumably) in accord with Regulation Z and other applicable statutory law.” 23 Opp’n at 6. Because it is plausible that the accounting may be complicated, the Court denies the 24 motion to dismiss this claim. 25 /// 26 /// 27 /// 28 /// 9 1 III. CONCLUSION 2 For the foregoing reasons, the Court grants in part and denies in part JPMorgan and B of A’s 3 motion to dismiss. More specifically, with respect to these Defendants, the Court dismisses without 4 prejudice the rescission claim and the § 17200 claim and dismisses the “injunctive relief claim.” 5 The Court conditionally dismisses with prejudice the quiet title claim against JPMorgan.4 In all 6 other respects, the motion is denied. Ms. Sullivan has until November 20, 2009, to file an amended 7 complaint to address the deficiencies described above. 8 The Court reserves ruling on CRC’s motion to dismiss. 9 This order disposes of Docket Nos. 7 and 17. 11 For the Northern District of California United States District Court 10 IT IS SO ORDERED. 12 13 Dated: October 23, 2009 14 _________________________ EDWARD M. CHEN United States Magistrate Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 The dismissal with prejudice is conditioned upon JPMorgan’s stipulation that it no longer has any interest in the property as discussed at the hearing. Upon filing of such stipulation, the dismissal shall be effective. 10
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