-NLS Jelsing et al v. MIT Lending et al, No. 3:2010cv00416 - Document 42 (S.D. Cal. 2010)
Court Description: ORDER Granting 8 Motion to Dismiss; Denying As Moot 25 Motion to Strike; and Granting 26 Motion to Dismiss. Granting NDEX's notice of joinder, construed as a motion for judgment on the pleadings. The Complaint is dismissed in its entirety. Plaintiffs have fourteen days from the filing of this order to re-plead their claims. Failure to do so will result in a final judgment dismissing this case. Signed by Judge Barry Ted Moskowitz on 7/9/10. (vet)
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-NLS Jelsing et al v. MIT Lending et al Doc. 42 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 REBEKAH JELSING, et al., Plaintiff, 12 13 Case No. 10cv416 BTM (NLS) ORDER RE MOTIONS TO DISMISS v. MIT LENDING, et al., 14 Defendant. 15 Several Defendants have moved to dismiss the Complaint. Wells Fargo Bank, N.A., 16 Mortgage Electronic Registration Systems, Inc. (“MERS”), and Deutsche Bank National Trust 17 Company, as trustee, have filed a motion to dismiss [Doc. 8]. And MIT Lending, Inc. and 18 MortgageIT, Inc. have filed a motion to strike and a motion to dismiss [Docs. 25, 26]. 19 The Court GRANTS Wells Fargo, MERS, and Deutsche Bank’s motion to dismiss 20 [Doc. 8], and GRANTS MIT Lending and MortgageIT’s motion to dismiss [Doc. 26]. The 21 Court DENIES as moot their motion to strike [Doc. 25]. 22 23 I. BACKGROUND1 24 Plaintiffs Rebekah and Joshua Jelsing twice refinanced their property at 407 Swamis 25 Lane, Encinitas, CA 92009. Their first loan, for $570,000.00, was secured by a deed of trust 26 on their property. They executed the loan documents in June 2005. Their second loan, for 27 28 1 The following are merely allegations in the Complaint, not the Court’s factual findings. 1 10cv416 BTM (NLS) Dockets.Justia.com 1 $140,500.00, was also secured by a deed of trust on their property. They executed the loan 2 documents for the second loan in May 2006. 3 A notice of default and election to sell under deed of trust was recorded against the 4 property in November 2008. And in February 2009, a notice of trustee’s sale was recorded 5 against the property. The Jelsings then transferred legal title to the property by grant deed 6 to Plaintiff KAP CA, LLC in November 2009. The same month, a third-party buyer tendered 7 a short-sale offer to Defendant Wells Fargo, which serviced the first loan. Wells Fargo 8 denied the offer. 9 10 Plaintiffs allege eight causes of action related to their two loans. The Court discusses the law and facts related to each claim below. 11 12 II. LEGAL STANDARD 13 Under Federal Rule of Civil Procedure 8(a)(2), the plaintiff is required only to set forth 14 a “short and plain statement of the claim showing that the pleader is entitled to relief,” and 15 “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.” 16 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). When reviewing a motion to 17 dismiss, the allegations of material fact in plaintiff’s complaint are taken as true and 18 construed in the light most favorable to the plaintiff. See Parks Sch. of Bus., Inc. v. 19 Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). But only factual allegations must be 20 accepted as true—not legal conclusions. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). 21 “Threadbare recitals of the elements of a cause of action, supported by mere conclusory 22 statements, do not suffice.” Id. Although detailed factual allegations are not required, the 23 factual allegations ”must be enough to raise a right to relief above the speculative level.” 24 Twombly, 550 U.S. at 555. Furthermore, “only a complaint that states a plausible claim for 25 relief survives a motion to dismiss.” Iqbal, 129 S. Ct. at 1949. 26 In ruling on a motion to dismiss, a court may take judicial notice of matters of public 27 record that are not subject to reasonable dispute. Lee v. City of Los Angeles, 250 F.3d 668, 28 689 (9th Cir. 2001). 2 10cv416 BTM (NLS) 1 III. DISCUSSION 2 3 1. Real Estate Settlement Procedures Act 4 As an initial matter, Wells Fargo, MERS, and Deutsche Bank all argue that Plaintiffs’ 5 failure to tender the full amount of their outstanding obligation undermines all their claims. 6 The Court disagrees. As explained in a later section of this order, only some of Plaintiffs’ 7 claims require a tender; others do not. 8 Plaintiffs claim against Wells Fargo under the Real Estate Settlement Procedures Act 9 (“RESPA”), for example, does not require a tender to be valid. It does, however, fail for other 10 reasons. 11 Plaintiffs make a claim under RESPA for failing to respond to a qualified written 12 request (“QWR”), which is a request for information about a loan. See 12 U.S.C. § 2605(e). 13 Plaintiffs allege they sent Wells Fargo a QWR, but it never responded. RESPA requires loan 14 servicers to respond to QWR’s. See id. Wells Fargo does not dispute that it failed to 15 respond. Instead, it argues that Plaintiffs have not pled they suffered damages because of 16 Wells Fargo’s failure, which is an essential element of their claim. The Court agrees. 17 “Numerous courts have read Section 2605 as requiring a showing of pecuniary 18 damages in order to state a claim.” Molina v. Wash. Mut. Bank, No. 09cv894, 2010 WL 19 431439, at *7 (S.D. Cal. Jan. 29, 2010) (listing cases). Here, Plaintiffs only allege they “were 20 harmed and were unable to evaluate the Loans or correct their account.” This conclusory 21 allegation is not enough and fails to adequately plead damages. 22 Plaintiffs also seek statutory damages for the alleged RESPA violations. But statutory 23 damages are only available for a “pattern or practice of [RESPA] noncompliance.” See 12 24 U.S.C. § 2605(f)(1)(B). Plaintiffs have not alleged a pattern or practice, and their RESPA 25 claim is DISMISSED without prejudice. 26 // 27 // 28 // 3 10cv416 BTM (NLS) 1 2. California Civil Code § 2943 2 Plaintiffs assert a state-law claim against Wells Fargo and PNC Mortgage LLC2 for 3 their alleged failure to respond to a demand letter. Wells Fargo argues that this claim should 4 be dismissed because federal law explicitly preempts it. 5 State laws that “obstruct, impair, or condition a national bank’s ability to fully exercise 6 its Federally authorized real estate lending powers do not apply to national banks.” 12 7 C.F.R. § 34.4(a). Any state laws regulating national banks, including those regarding 8 disclosure and advertising, § 34.4(a)(9), or processing, participation in, or servicing of 9 mortgages, § 34.4(a)(10), are preempted by federal law. § 34.4(a). These preemption 10 regulations, which apply to national banks, are nearly identical to regulations that govern 11 national savings associations. See 12 C.F.R. § 560.2(b). 12 Plaintiffs dispute that Wells Fargo is a national savings association, but they do not 13 dispute that Wells Fargo is a national bank. In fact, Plaintiffs admit that Wells Fargo “is a 14 bank organized under the laws of the United States.” (Compl. ¶ 5.) Whether Wells Fargo 15 is a national bank or a savings association, the preemption regulations apply equally. See 16 12 C.F.R. §§ 34.4(a), 560.2(a). Plaintiffs’ state law claim rests on Wells Fargo’s alleged 17 failure to respond to a demand letter. Under California law, when a lender receives a letter 18 demand for “a copy of the note or other evidence of indebtedness,” it must deliver a copy, 19 along with a beneficiary statement, within twenty-one days. Cal. Civ. Code § 2943(b)(1). 20 This provision imposes a requirement related to disclosure, 12 C.F.R. § 560.2(b)(9), or the 21 processing or servicing of mortgages, § 560.2(b)(10). It is therefore preempted. 22 Plaintiffs point to an exception in the regulations for a state law that “[f]urthers a vital 23 state interest” and “only has an incidental effect on lending operations or is not otherwise 24 contrary to the purposes” of the preemption regulation. 12 C.F.R. § 560.2(c)(6). This 25 exception is inapplicable. First, it is very unlikely that the state law regarding demand letters 26 furthers a vital state interest. 27 specifically listed in § 560.2(b). Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1005 (9th Second, this exception only applies to state laws not 28 2 Plaintiffs have since voluntarily dismissed PNC Mortgage LLC and PNC Bank, N.A. 4 10cv416 BTM (NLS) 1 Cir. 2008). And since state laws related to disclosure and the servicing of mortgages are 2 specifically listed in § 560.2(b), the exception does not apply. 3 Even assuming California Civil Code § 2943 was not preempted, Plaintiffs would still 4 fail to state a claim. That is because the demand letter must be sent either before, or within 5 two months after, the recording of a notice of default, or more than thirty days before entry 6 of the decree of foreclosure. Cal. Civ. Code § 2943(b)(2). Plaintiffs sent their first demand 7 letter well after these deadlines. For these reasons, Plaintiffs fail to state a claim under 8 California Civil Code § 2943 against Wells Fargo.3 9 10 Because the claim is preempted, the Court DISMISSES with prejudice Plaintiffs’ second cause of action under § 2943. 11 12 3. Business and Professions Code § 17200 (Against Wells Fargo) 13 Plaintiffs assert a claim against Wells Fargo under section 17200 of the California 14 Business and Professions Code. Section 17200 “‘borrows’ violations of other laws and 15 treats” them as unlawful business practices “independently actionable under section 17200.” 16 Farmers Ins. Exch. v. Superior Court, 2 Cal. 4th 377, 383 (1992). “Violation of almost any 17 federal, state, or local law may serve as the basis for a[n] [unfair competition] claim.” 18 Plascencia v. Lending 1st Mortg., 583 F. Supp. 2d 1090, 1098 (N.D. Cal. 2008) (citing 19 Saunders v. Superior Court, 27 Cal. App. 4th 832, 838–39 (1994)). 20 Plaintiffs cite three other laws as predicate violations for § 17200. Two are the alleged 21 RESPA and California Civil Code § 2943 violations. The Court has already held that 22 Plaintiffs failed to state a claim under those laws. So the only remaining alleged predicate 23 violation is under California Civil Code § 2923.6. 24 Section 2923.6 says the “Legislature finds and declares that any duty servicers may 25 have to maximize net present value under their pooling and servicing agreements is owed 26 27 28 3 Wells Fargo also argues that this claim should be dismissed because Plaintiffs did not tender the amounts they owed. But this is only a prerequisite to challenging a foreclosure sale, Abdallah v. United Sav. Bank, 43 Cal. App. 4th 1101, 1109 (1996), and in this claim Plaintiffs seek damages. 5 10cv416 BTM (NLS) 1 to all parties in a loan pool, or to all investors under a pooling and servicing agreement, not 2 to any particular party in the loan pool or investor under a pooling and servicing agreement.” 3 Cal. Civ. Code § 2923.6(a).4 Plaintiffs allege that Wells Fargo violated this law when it 4 refused an offer for a short sale of Plaintiffs’ property. But they have not alleged that Wells 5 Fargo had a duty to maximize net present value under its pooling and service agreement, 6 which is what § 2923.6 focuses on. Moreover, § 2923.6 only says that Wells Fargo must 7 treat all investors equally, and cannot favor one over another. Plaintiffs are not pool 8 investors and § 2923.6 does not require Wells Fargo to accept an offer for a short sale from 9 them. Section 2923.6 was designed to protect the investors and servicers in a pool and not 10 mortgagors. Therefore, Plaintiffs do not have standing to assert this claim. 11 Section 2923.6 also says that “[i]t is the intent of the Legislature that the mortgagee, 12 beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such 13 a modification or plan is consistent with its contractual or other authority.” Id. at § 2923.6(b). 14 But “nothing in Cal. Civ. Code § 2923.6 imposes a duty on servicers of loans to modify the 15 terms of loans or creates a private right of action for borrowers.” Farner v. Countrywide 16 Home Loans, No. 08cv2193, 2009 WL 189025, at *2 (S.D. Cal. January 26, 2009). 17 There is another reason to reject the application of § 2923.6: it is preempted by federal 18 law. As the Court has already discussed, state laws regulating the servicing, processing, or 19 20 21 22 23 24 4 California Civil Code § 2923.6 provides (a) The Legislature finds and declares that any duty servicers may have to maximize net present value under their pooling and servicing agreements is owed to all parties in a loan pool, or to all investors under a pooling and servicing agreement, not to any particular party in the loan pool or investor under a pooling and servicing agreement, and that a servicer acts in the best interests of all parties to the loan pool or investors in the pooling and servicing agreement if it agrees to or implements a loan modification or workout plan for which both of the following apply: 25 (1) The loan is in payment default, or payment default is reasonably foreseeable. 26 (2) Anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis. 27 28 (b) It is the intent of the Legislature that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such a modification or plan is consistent with its contractual or other authority. 6 10cv416 BTM (NLS) 1 sale of mortgage loans by national banks or federal savings associations are preempted by 2 federal regulations. 12 C.F.R. §§ 34.4(a)(10), 560.2(b)(10). Section 2923.6 relates to the 3 servicing of mortgage loans and is therefore preempted. See Biggins v. Wells Fargo & Co., 4 266 F.R.D. 399, 417 (N.D. Cal. 2009). 5 Plaintiffs also assert a predicate violation under California Business and Professions 6 Code § 17500, but this provision relates to false advertising, Durell v. Sharp Healthcare, 183 7 Cal. App. 4th 1350, 1361 n.5 (2010) (referring to § 17500 as pertaining to false or misleading 8 advertising), and is inapplicable. 9 10 None of the predicate violations for Plaintiffs’ § 17200 are viable, and the Court DISMISSES without prejudice Plaintiffs’ third cause of action for § 17200 violations. 11 12 4. Business and Professions Code § 17200 (Against MIT and Deutsche and Does) 13 Plaintiffs assert another § 17200 claim against MIT Lending, Deutsche Bank, and 14 Does for failure to disclose certain terms in connection with the first loan. They use California 15 Business and Professions Code § 17500 as the predicate violation for this cause of action. 16 But as the Court noted above, § 17500 is a California law related to false advertising for the 17 sale of property or services. See, e.g., Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350, 18 1361 n.5 (2010). None of Plaintiffs’ allegations relate to false or misleading advertising, and 19 Plaintiffs therefore fail to state a claim under § 17500 and, by extension, § 17200. 20 Moreover, Plaintiffs’ filed their action over four years since the origination of the loan, 21 and their cause of action is time barred. See Cal. Bus. & Prof. Code § 17208 (“[a]ny action 22 to enforce any cause of action pursuant to this chapter shall be commenced within four years 23 after the cause of action accrued”). Plaintiffs have not cited any case law to support its 24 argument for delayed accrual. 25 26 The Court DISMISSES without prejudice Plaintiffs’ fourth cause of action for § 17200 violations.5 27 5 28 MIT Lending and MortgageIT also argue that Plaintiffs have failed to plead fraud with particularity. But it does not appear that Plaintiffs are pleading an action for fraud, so the Court does not address the particularity requirement here. 7 10cv416 BTM (NLS) 1 5. Federal Fair Debt Collection Practices Act 2 Plaintiffs also make a claim against MIT Lending, Mortgage Electronic Registration 3 Systems, Inc., Deutsche Bank, and Does under the Federal Fair Debt Collection Practices 4 Act, 15 U.S.C. §§ 1692-1692o (“FDCPA”). Plaintiffs allege that Wells Fargo, as agent for 5 Deutsche Bank, violated the FDCPA. 6 As an initial matter, MIT Lending and MortgageIT argue that this claim is time barred. 7 The statute of limitations on FDCPA claims is one year. 15 U.S.C. § 1692k(d). Plaintiffs filed 8 suit on February 23, 2010, and the only allegation within one year of that date is the issuance 9 of a Notice of Trustee’s sale dated February 24, 2009. The Notice of Trustee’s sale is 10 therefore the only possible basis for liability under the FDCPA. 11 Sending a Notice of Trustee’s Sale is not actionable under the FDCPA for two 12 reasons. First, Plaintiffs have not alleged that Wells Fargo is a debt collector. Wells Fargo 13 is a mortgage servicer, and “[a] mortgage servicing company is not a debt collector within the 14 meaning of the FDCPA. Walker v. Equity 1 Lenders Group, No. 09cv325, 2009 WL 15 1364430, at *7 (S.D. Cal. May 14, 2009) (citing Perry v. Stewart Title Co., 756 F.2d 1197, 16 1208 (5th Cir. 1985)). Second, “foreclosing on [a] property pursuant to a deed of trust is not 17 the collection of a debt within the meaning of the FDCPA.” Izenberg v. ETS Servs., LLC, 589 18 F. Supp. 2d 1193, 1199 (C.D. Cal. 2008) (citing Ines v. Countrywide Home Loans, No. 19 08cv1267 WQH (NLS), 2008 WL 4791863, *2 (S.D. Cal. Nov. 3, 2008)). 20 Plaintiffs also allege that MIT and Deutsche Bank failed to disclose certain terms in 21 the first loan. Not only are these claims time barred, see 15 U.S.C. § 1692k(d), but the 22 FDCPA does not address disclosure failures made in connection with a mortgage loan, see 23 15 U.S.C. §§ 1692-1692o. 24 Plaintiffs’ fifth cause of action under the FDCPA is DISMISSED without prejudice. 25 26 6. Cancellation of First Trust Deed 27 Plaintiffs seek to cancel the trust deed related to their first loan. They allege they are 28 entitled to cancel the deed because “the First Note was assigned without a concurrent 8 10cv416 BTM (NLS) 1 assignation of the underlying First Trust Deed making the First Trust Deed a nullity.” 2 There are several problems with Plaintiffs’ claim. First, cancellation of a trust deed 3 is really a claim for rescission. Moreno v. Citibank, N.A., 09cv5339, 2010 WL 1038222, at 4 *4 (N.D. Cal. March 19, 2010). And rescission is a remedy, not an independent cause of 5 action. Id. (citing Cal. Civ. Code §§ 1689, 1691–92). Moreover, in order to effect a 6 rescission, a party must tender the amounts received under the contract, see Cal. Civ. Code 7 § 1691, which Plaintiffs have not done.6 8 Even if Plaintiffs had tendered, the exhibits submitted with their Complaint undermines 9 their claim. Plaintiffs contend that the assignment of the first note did not include an 10 assignment of the trust deed, which somehow nullifies the deed. But the assignment of deed 11 of trust expressly included both the deed and the note. The assignment assigned to 12 Deutsche Bank “all beneficial interest under” the first deed of trust, “[t]ogether with the note 13 or notes therein described or referred to, the money due and to become due thereon with 14 interest, and all rights accrued or to accrue under said Deed of Trust.” The plain language 15 of the assignment contradicts Plaintiffs’ claims that the deed and the note were split. 16 17 The Court DISMISSES without prejudice Plaintiffs’ sixth cause of action for cancellation of trust deed. 18 19 7. Quiet Title 20 Plaintiffs seek to quiet title in their favor. But the basis for their claim, that the first 21 trust deed was split from the first note, has already been rejected by the Court. Further, in 22 order to allege an action to quiet title, Plaintiffs must have discharged their debt. Aguilar v. 23 Bocci, 39 Cal. App. 3d 475, 477–79 (1974) (The borrower “cannot quiet title without 24 discharging his debt. The cloud upon his title persists until the debt is paid.”). Plaintiffs do 25 not allege that they have done so. 26 The Court DISMISSES without prejudice Plaintiffs’ seventh cause of action for quiet 27 6 28 Plaintiffs allegedly offered a short sale to Wells Fargo and argue that this satisfies the tender requirement. But they cite no authority supporting this contention and the Court rejects it. 9 10cv416 BTM (NLS) 1 title. 2 3 8. Declaratory Relief 4 Plaintiffs have not alleged any causes of action that would support declaratory relief. 5 Its allegations related to this claim are identical to the allegations in the other claims, which 6 the Court has dismissed. The Court therefore DISMISSES without prejudice Plaintiffs’ 7 eighth cause of action for declaratory relief. Surf & Sand, LLC v. City of Capitola, 2008 WL 8 2225684, at *2, n.5 (N.D. Cal. May 28, 2008) (a claim for declaratory relief “rises or falls with 9 [the] other claims”). 10 11 9. MortgageIT’s Motion to Strike 12 Defendants MortgageIT and MIT Lending have moved to strike Plaintiffs’ request for 13 damages and attorneys’ fees. But the Court has dismissed the Complaint and DENIES this 14 motion as moot. 15 16 10. NDEX West’s Notice of Joinder 17 Defendant NDEX West, LLC has filed a Notice of Joinder in MortgageIT and MIT 18 Lending’s motion to dismiss and motion to strike [Doc. 30]. Although NDEX has already filed 19 an answer and has therefore waived its ability to file a Rule 12(b)(6) motion, the Court may 20 construe their notice of joinder as a motion for judgment on the pleadings. See Aldabe v. 21 Aldabe, 616 F.2d 1089, 1093 (9th Cir. 1980). The Court DISMISSES the claims against 22 NDEX because Plaintiffs’ have made no allegations against it, and because Plaintiffs’ claims 23 are legally insufficient as described above. 24 // 25 // 26 // 27 // 28 // 10 10cv416 BTM (NLS) 1 IV. CONCLUSION 2 The Court GRANTS Wells Fargo, MERS, and Deutsche Bank’s motion to dismiss 3 [Doc. 8], and GRANTS MIT Lending and MortgageIT’s motion to dismiss [Doc. 26]. The 4 Court GRANTS NDEX’s notice of joinder, construed as a motion for judgment on the 5 pleadings. The Court DENIES as moot the motion to strike [Doc. 25]. The Court dismisses 6 Plaintiffs’ second cause of action under California Civil Code § 2943 with prejudice, but 7 Plaintiffs may re-plead their other claims. 8 The Complaint is dismissed in its entirety. Plaintiffs have fourteen days from the filing 9 of this order to re-plead their claims. Failure to do so will result in a final judgment dismissing 10 this case. 11 IT IS SO ORDERED. 12 DATED: July 9, 2010 13 14 Honorable Barry Ted Moskowitz United States District Judge 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 10cv416 BTM (NLS)
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