Brooks v. Comunity Lending,Inc.,, No. 5:2007cv04501 - Document 108 (N.D. Cal. 2009)
Court Description: ORDER GRANTING 94 , 96 & 98 MOTIONS TO DISMISS. Signed by Judge Jeremy Fogel on 5/29/09. (jflc3, COURT STAFF) (Filed on 5/29/2009)
Download PDF
<![CDATA[
Brooks v. Comunity Lending,Inc., Doc. 108 1 **E-Filed 5/29/09** 2 3 4 5 6 7 8 IN THE UNITED STATES DISTRICT COURT 9 FOR THE NORTHERN DISTRICT OF CALIFORNIA 10 SAN JOSE DIVISION 11 12 13 14 Case Number C 07-4501 JF (RS) MARJORIE BROOKS, individually and on behalf of others similarly situated, Plaintiff, 15 RE: Docket Nos. 94, 96, 98 v. 16 17 18 19 20 ORDER1 GRANTING MOTIONS TO DISMISS COMUNITY LENDING., INC; GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.; GREENWICH CAPITAL ACCEPTANCE, INC.; GMAC MORTGAGE, LLC; and WELLS FARGO BANK, N.A., as Trustee of the Harborview Mortgage Loan Trust 2006-2010, Defendants. 21 22 23 24 In this putative consumer class action, Plaintiff Marjorie Brooks alleges violations of the 25 federal Truth in Lending Act (“TILA”) and state-law claims for unfair business practices, breach 26 of contract, and breach of the implied covenant of good faith and fair dealing. Plaintiff alleges 27 28 1 This disposition is not designated for publication in the official reports. Case No. C 07-4501 JF (RS) ORDER GRANTING MOTIONS TO DISMISS (JFLC3) Dockets.Justia.com 1 that Defendants ComUnity Lending, Inc. (“ComUnity”), RBS Financial Products, 2 Inc./Greenwich Capital Acceptance, Inc. (“Greenwich”), GMAC Mortgage, LLC (“GMAC”), 3 and Wells Fargo Bank (“Wells Fargo) (collectively, with the exception of ComUnity,2 4 “Defendants”) failed to disclose important information about her residential mortgage in the clear 5 and conspicuous manner required by law. Defendant ComUnity originated Plaintiff’s loan in 6 2006. The loan subsequently was sold to Greenwich, transferred to Wells Fargo in trust, and 7 serviced by GMAC. 8 9 On February 3, 2009, the Court granted Defendants’ motions to dismiss on the ground that the complaint lacked any allegations explaining why Plaintiff’s TILA claims–the only claims 10 providing this Court with original federal jurisdiction–were timely as to Defendants. Plaintiff 11 filed a fourth amended complaint on March 5, 2009. Defendants now move to dismiss that 12 complaint in its entirety for failure to state a claim upon which relief may be granted. As 13 explained below, Plaintiff still has not demonstrated that her TILA claims against the moving 14 Defendants are timely, and those claims accordingly will be dismissed. Consistent with its 15 previous order, the Court also will defer its determination of whether to exercise supplemental 16 jurisdiction over those claims until the viability of the remaining federal claims, including those 17 against ComUnity, may be assessed. The action will be stayed until that time. I. BACKGROUND 18 19 In May 2006, Plaintiff obtained an Option Adjustable Rate Mortgage (“Option ARM”) 20 from ComUnity. The terms of the mortgage are contained in the Adjustable Rate Note (“Note”) 21 executed by Plaintiff in connection with the loan. A central feature of the loan is its early interest 22 rate adjustment. While the interest rate on the loan is pegged to a variable index and changes 23 over time, the loan offered a low initial interest rate of 1%, which resulted in an initial minimum 24 25 26 27 28 2 ComUnity filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Northern District of California on January 4, 2008, requiring a stay of Plaintiff’s action against ComUnity. 2 Case No. C 07-4501 JF (RS) ORDER GRANTING MOTIONS TO DISMISS (JFLC3) 1 monthly payment of $1,193.78.3 After one month, the interest rate increased substantially from 2 the low initial rate of 1% to the substantially higher index-based rate, which was and continues to 3 be calculated by adding a 3.5% margin to an indexed figure. 4 Despite the almost immediate rise in the applicable interest rate, Plaintiff’s minimum 5 monthly payment remained level because the Note permits only one annual increase to the 6 minimum monthly payment. In addition, the Note provides for the exercise of a “payment cap” 7 on the amount of each such annual increase to the minimum monthly payment, limiting that 8 increase to 7.5%. However, if the loan’s unpaid principal balance reaches 115% of its original 9 value, the payment cap no longer applies and the remaining principal is paid off in equal monthly 10 payments over the remaining term of the loan. Because the initial monthly payment was based 11 on a 1% interest rate and did not rise with the actual interest rate that was charged, Plaintiff’s 12 mortgage began to accrue interest each month in an amount greater than the amount of her 13 monthly payment. The remaining interest was added to the balance of unpaid principal and itself 14 began accumulating interest. Consequently, the principal balance has increased even as Plaintiff 15 has made the minimum monthly payment. This situation is known as negative amortization, the 16 result of which is an ultimate reduction in the borrower’s equity. 17 In connection with the loan transaction, Plaintiff received a federally mandated Truth in 18 Lending Disclosure Statement (“Statement”) and a Loan Program Disclosure (“Disclosure”) with 19 information specific to the loan she was considering. The Statement specifies that the annual 20 percentage rate (“APR”) on the mortgage is 8.406%. The Statement also includes a schedule of 21 estimated payments (“Payment Schedule”) based in part on the initial 1% interest rate and in part 22 on the subsequent index-based rate. The Payment Schedule lists an initial minimum payment of 23 $1,193.78 that increases by 7.5% on July 1 of each year. In the fifth year, the payment increases 24 to $3,009.16, which apparently reflects the point at which the principal balance exceeds 115% of 25 its original value as a result of negative amortization, thus overriding the payment cap. The 26 Payment Schedule assumes that Plaintiff will make only the minimum monthly payment. 27 28 3 This amount is equal to the monthly payment on a fully amortized thirty-year loan with a 1% interest rate. 3 Case No. C 07-4501 JF (RS) ORDER GRANTING MOTIONS TO DISMISS (JFLC3) 1 Plaintiff claims that the loan documents failed clearly and conspicuously to disclose the 2 interest rate structure applicable to her loan and the consequent certainty that negative 3 amortization would occur if she made only the minimum payments. On this basis, Plaintiff 4 alleges multiple violations of TILA’s implementing regulations, contained in Title 12 of the 5 Code of Federal Regulations (“Regulation Z”). Specifically, she claims that Defendants violated 6 12 C.F.R. § 226.19 by failing adequately to disclose (1) the actual cost of her loan, as expressed 7 as a yearly interest rate in the Note and as an annual percentage rate (“APR”) on the TILDS, (2) 8 that the initial interest rate on the loan was discounted, and (3) that negative amortization was 9 certain to occur if Plaintiff followed the Payment Schedule. Plaintiff claims that Defendants 10 violated 12 C.F.R. §§ 226.17 & 226.18 by failing adequately to disclose: (1) the interest rate(s) 11 upon which the Payment Schedule was based, (2) the effect of the payment cap, and (3) the 12 composite APR. Plaintiff also alleges that Defendants committed unlawful, unfair, and 13 fraudulent business practices in violation of § 17200 of the California Business and Professions 14 Code, and committed fraud by failing adequately to make the foregoing disclosures. Finally, 15 Plaintiff claims that by failing (1) to apply a low, “fixed” interest rate for the first three to five 16 years of the loan term, and (2) to apply each payment to “principal and interest,” Defendants 17 breached both the express terms of the Note and the implied covenant of good faith and fair 18 dealing contained in every contract under California law. 19 II. LEGAL STANDARD FOR DISMISSAL PURSUANT TO RULE 12(b)(6) 20 A complaint may be dismissed for failure to state a claim upon which relief may be 21 granted for one of two reasons: (1) lack of a cognizable legal theory; or (2) insufficient facts 22 under a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 23 (9th Cir. 1984). For purposes of a motion to dismiss, all allegations of material fact in the 24 complaint are taken as true and construed in the light most favorable to the nonmoving party. 25 Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). A complaint should not be 26 dismissed “unless it appears beyond doubt the plaintiff can prove no set of facts in support of his 27 claim that would entitle him to relief.” Clegg, 18 F.3d at 754. In addition, leave to amend must 28 be granted unless it is clear that the complaint’s deficiencies cannot be cured by amendment. 4 Case No. C 07-4501 JF (RS) ORDER GRANTING MOTIONS TO DISMISS (JFLC3) 1 Lucas v. Dep’t of Corrs., 66 F.3d 245, 248 (9th Cir. 1995). Conversely, dismissal may be 2 ordered with prejudice when amendment would be futile. Dumas v. Kipp, 90 F.3d 386, 393 (9th 3 Cir. 1996). III. DISCUSSION 4 5 A. Timeliness of TILA claims 6 Greenwich and Wells Fargo4 argue that Plaintiff’s TILA claims are barred by the 7 applicable one-year statute of limitations, which begins to run when the transaction underlying 8 the alleged violation is “consummated.” See King v. California, 784 F.2d 910, 915 (9th 9 Cir.1986); see also 15 U.S.C. § 1640(e). In the instant case, Plaintiff’s TILA claims arose at the 10 latest at the closing of her mortgage transaction on May 19, 2006. Plaintiff did not file the 11 instant action until August 30, 2007, more than one year from the date she and Defendant 12 consummated the transaction, and did not file a complaint including claims against Greenwich 13 and Wells Fargo until September 30, 2008, more than twenty-eight months from the date of 14 consummation. Thus, the one-year time limit of § 1640(e) has expired as to those defendants. In 15 order adequately to plead that her claims are timely, Plaintiff must allege facts supporting 16 equitable tolling of her original complaint, and facts demonstrating that her later complaint 17 naming Defendants relates back to the original complaint. 18 The Ninth Circuit has held that TILA’s remedial purpose authorizes equitable tolling of 19 the limitations period in appropriate circumstances. King, 784 F.2d at 915. Such circumstances 20 exist where “a reasonable plaintiff would not have known of the existence of a possible claim 21 within the limitations period.” Santa Maria v. Pac. Bell, 202 F.3d 1170, 1178 (9th Cir. 2002). 22 In such a case, the limitations period may be extended “until the borrower discovers or had 23 reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA 24 action.” King, 784 F.2d at 915. “Generally, the applicability of equitable tolling depends on 25 matters outside the pleadings, so it is rarely appropriate to grant a Rule 12(b)(6) motion to 26 dismiss . . . if equitable tolling is at issue.” Huynh v. Chase Manhattan Bank, 465 F.3d 992, 27 28 4 Wells Fargo joins in the argument of Greenwich with respect to the timeliness of Plaintiff’s TILA claims. 5 Case No. C 07-4501 JF (RS) ORDER GRANTING MOTIONS TO DISMISS (JFLC3) 1 1003-04 (9th Cir. 2006). A motion to dismiss on statute of limitations grounds should be granted 2 “only if the assertions of the complaint, read with the required liberality, would not permit the 3 plaintiff to prove that the statute was tolled.” Plascencia v. Lending 1st Mortgage, 583 F. Supp. 4 2d 1090, 1097 (N.D. Cal. 2008) (quoting Durning v. First Boston Corp., 815 F.2d 1265, 1278 5 (9th Cir. 1987)); Ford v. Wells Fargo Home Mortg., No. 08-4276 SC, 2008 WL 5070687, at *4 6 -5 (N.D. Cal. Dec. 1, 2008) (declining to grant motion to dismiss on statute of limitations 7 grounds because “factual allegations in the Complaint, construed in a light most favorable to 8 Plaintiffs, might give rise to tolling of the statute”). 9 In the instant case, Plaintiff alleges that the loan documents provided by ComUnity did 10 not clearly disclose that it intended to increase the interest rate applicable to Plaintiff’s loan after 11 only thirty days. Plaintiff also alleges that the loan documents did not clearly disclose the 12 certainty that negative amortization would occur if Plaintiff followed the Payment Schedule 13 provided in the Statement. The allegations in the complaint are sufficient to raise questions 14 about the reasonableness of Plaintiff’s ignorance of her TILA claims until after the expiration of 15 the limitations period.5 16 Nonetheless, Plaintiff’s TILA claim against Greenwich and Wells Fargo is barred because 17 it does not relate back to the original complaint. The issue of whether a proposed amendment to 18 a complaint relates back to a previous complaint is governed by Federal Rule of Civil Procedure 19 Rule 15(c). Pursuant to Rule 15(c)(3), an amended complaint naming a new party relates back to 20 the filing date of the original complaint only if it arose from the same conduct or transaction, and, 21 within 120 days of the original complaint, the new party had notice of the litigation such that it 22 would not be prejudiced and knew or should have known it was the proper defendant. See Fed. 23 24 25 26 27 28 5 The Court recognizes some inconsistency in Plaintiff’s equitable tolling argument. Plaintiff argues that she could not have become aware of the violations until she was required to make her first non-amortizing payment on August 1, 2006, but she then assumes without explanation that she could not have been on notice of her claims until August 30, 2006 (one year before she filed the instant action). This one-month discrepancy, however, does not alter the Court’s analysis of equitable tolling in the context of a 12(b)(6) motion, particularly since it is doubtful whether the appearance of negative amortization on the statement was sufficient to trigger any immediate duty to act on the part of Plaintiff. 6 Case No. C 07-4501 JF (RS) ORDER GRANTING MOTIONS TO DISMISS (JFLC3) 1 R. Civ. P. 15(c); G.F. Co. v. Pan Ocean Shipping Co. Ltd., 23 F.3d 1498, 1501 (9th Cir. 1994). 2 The Rule has been interpreted to mean that for “claims asserted against a new defendant to relate 3 back in time to the original complaint, the plaintiff must demonstrate . . . that the new party knew 4 or should have known that the action would have been brought against the party but for a mistake 5 in identity.” Bass v. World Wrestling Fed’n Entm’t, Inc., 129 F. Supp. 2d 491, 507-08 (E.D.N.Y. 6 2001). The pleading of John Doe defendants does not materially alter this analysis, since “leave 7 to substitute a named defendant for a Doe defendant will be granted only when all subdivisions 8 of Rule 15(c)(3) are satisfied.” Butler v. Robar Enterprises, Inc., 208 F.R.D. 621, 623-25 (C.D. 9 Cal. 2002); see also Wayne v. Jarvis, 197 F.3d 1098, 1102-04 (11th Cir. 1999) (analyzing motion 10 to amend complaint to substitute named defendant for Doe defendant pursuant to Rule 15(c)(3)); 11 Baskin v. City of Des Plaines, 138 F.3d 701, 703-04 (7th Cir. 1998) (same). 12 Plaintiff fails even to address the relation back doctrine, with which she must comply in 13 order to maintain her TILA claim against Greenwich and Wells Fargo, and there are no factual 14 allegations to suggest that the requirements of the doctrine have been satisfied in this case. 15 Specifically, there is no indication that Greenwich and Wells Fargo had notice of the suit within 16 the 120 day period required by Rule 4(m). Miguel v. Country Funding Corp., 309 F.3d 1161, 17 1165 (9th Cir. 2002) (affirming dismissal of claims where requirements of relation back doctrine 18 were not satisfied). In addition, even assuming that Plaintiff was not aware of Defendants’ 19 potential liability for alleged violations of TILA, “lack of knowledge is not a ‘mistake’” of the 20 kind required by Rule 15(c)(3). Butler, 208 F.R.D. at 623-24 (collecting cases). Accordingly, 21 Plaintiff’s addition of Greenwich and Wells Fargo as defendants does not relate back to the 22 potentially timely original complaint, and Plaintiff’s TILA claim against Greenwich and Wells 23 Fargo therefore is time-barred. 24 While it appears doubtful that Plaintiff will be able to satisfy the requirements of Rule 25 15(c)(3), the Court cannot say with certainty that further amendment would be futile. Cf. Bonin 26 v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995) (noting that factors constraining district court’s 27 discretion to deny leave to amend are not given equal weight, and that futility of amendment 28 alone warrants denial of leave to amend). The Court therefore will grant leave to amend, but 7 Case No. C 07-4501 JF (RS) ORDER GRANTING MOTIONS TO DISMISS (JFLC3) 1 observes that Plaintiff quickly is approaching the point of having “repeated[ly] fail[ed] to cure” 2 identified pleading deficiencies. Cf. United States v. SmithKline Beecham, Inc., 245 F.3d 1048, 3 1052 (9th Cir. 2001) (noting that denial of leave to amend may be proper where there is a 4 “repeated failure to cure deficiencies by previous amendments”). 5 B. 6 Supplemental jurisdiction While courts may exercise supplemental jurisdiction over state-law claims “that are so 7 related to claims in the action within [the court’s] original jurisdiction that they form part of the 8 same case or controversy under Article III of the United States Constitution,” 28 U.S.C. § 9 1367(a), a court may decline to exercise supplemental jurisdiction where it “has dismissed all 10 claims over which it has original jurisdiction,” id. § 1367(c)(3). Indeed, unless “considerations 11 of judicial economy, convenience[,] and fairness to litigants” weigh in favor of the exercise of 12 supplemental jurisdiction, “a federal court should hesitate to exercise jurisdiction over state 13 claims.” United Mine Workers v. Gibbs, 383 U.S. 715, 726 (1966); see also Carnegie-Mellon 14 Univ. v. Cohill, 484 U.S. 343, 350 (1988) (“[A] federal court should consider and weigh in each 15 case, and at every stage of the litigation, the values of judicial economy, convenience, fairness, 16 and comity.”); accord City of Chicago v. Int’l College of Surgeons, 522 U.S. 156 (1997). 17 Because it remains unclear whether the instant action contains any viable federal claims, 18 the Court will defer its ruling on Defendants’ motions with respect to the state-law claims and 19 will stay the instant action until it properly may determine whether Plaintiff has stated TILA 20 claims against ComUnity or the moving Defendants. That determination will allow the Court to 21 assess whether it should exercise supplemental jurisdiction over any of the state-law claims. Cf. 22 Heil v. Wells Fargo Bank, N.A., 298 Fed. Appx. 703, 707, 2008 WL 4516685, at *4 (10th Cir. 23 2008) (noting that “[w]hen all federal claims have been dismissed, the court may, and usually 24 should, decline to exercise jurisdiction over any remaining state claims,” and affirming district 25 court’s decision not to exercise supplemental over state-law claims based on alleged TILA 26 violations). Plaintiff may file an amended complaint not later than twenty days from the date of 27 this order. 28 8 Case No. C 07-4501 JF (RS) ORDER GRANTING MOTIONS TO DISMISS (JFLC3) 1 IT IS SO ORDERED. 2 3 DATED: 5/29/09 4 5 JEREMY FOGEL United States District Judge 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 Case No. C 07-4501 JF (RS) ORDER GRANTING MOTIONS TO DISMISS (JFLC3) 1 This Order has been served upon the following persons: 2 Andrew L Sandler asandler@buckleysandler.com, kstamato@skadden.com 3 Benjamin B. Klubes bklubes@buckleysandler.com 4 David M. Arbogast darbogast@law111.com, jkerr@law111.com 5 James Matthew Goodin jmgoodin@lockelord.com, docket@lockelord.com, kmorehouse@lockelord.com, ttill@lockelord.com 6 Jeffrey K Berns jberns@law111.com, staff@jeffbernslaw.com 7 Jonathan Shub jshub@seegerweiss.com, atorres@seegerweiss.com 8 Lee A. Weiss lweiss@bwgfirm.com 9 Michelle L. Rogers mrogers@buckleysandler.com 10 Nina Huerta nhuerta@lockelord.com, ataylor2@lockelord.com 11 12 Phillip Russell Perdew rperdew@lockelord.com, docket@lordelord.com, kmorehouse@lockelord.com, ttill@lockelord.com 13 Rebecca Tingey rtingey@bwgfirm.com 14 Richard J. Sahatjian rsahatjian@buckleysandler.com 15 Thomas J. Cunningham tcunningham@lockelord.com, docket@lockelord.com, kmorehouse@lockelord.com, ttill@lockelord.com 16 17 18 19 20 21 22 23 24 25 26 27 28 10 Case No. C 07-4501 JF (RS) ORDER GRANTING MOTIONS TO DISMISS (JFLC3)
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
