Falcocchia et al v. Saxon Mortgage, Inc. et al, No. 2:2009cv02700 - Document 34 (E.D. Cal. 2010)
Court Description: ORDER granting in part and denying in part 26 dfts' Motion to Dismiss, signed by Senior Judge Lawrence K. Karlton on 5/27/10. Pltfs are GRANTED 21 days to file an amended complaint seeking to cure the defects identified in the order as to pltfs' RESPA claim. (Kastilahn, A)
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Falcocchia et al v. Saxon Mortgage, Inc. et al Doc. 34 1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 FOR THE EASTERN DISTRICT OF CALIFORNIA 9 10 JOHN J. FALCOCCHIA and RACHAEL D. FALCOCCHIA, NO. CIV. S-09-2700 LKK/GGH 11 Plaintiffs, 12 v. O R D E R 13 SAXON MORTGAGE, INC., et al., 14 Defendants. 15 / 16 This case involves plaintiffs’ mortgage. In a prior order, the 17 court largely granted a motion to dismiss brought by defendants 18 Saxon Mortgage, Inc., Saxon Mortgage Services, Inc., and Deutsche 19 Bank Trust Company Americas. 20 amend and filed an amended complaint. 21 renewed motion to dismiss, primarily arguing that plaintiffs have 22 failed 23 explained below, the court largely agrees, though on more than one 24 occasion, 25 determination. 26 //// to cure the defendant Plaintiffs were granted leave to previously failed to Defendants have filed a identified raise the deficiencies. court's As previous 1 Dockets.Justia.com I. Standard for a Motion to Dismiss 1 2 A Fed. R. Civ. P. 12(b)(6) motion challenges a complaint’s 3 compliance with the pleading requirements provided by the Federal 4 Rules. 5 “short and plain statement of the claim showing that the pleader 6 is entitled to relief.” 7 notice of what the claim is and the grounds upon which it rests.” 8 Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (internal 9 quotation and modification omitted). To meet this requirement, the Under Fed. R. Civ. P. 8(a)(2), a pleading must contain a The complaint must give defendant “fair 10 complaint must be supported by factual allegations. Ashcroft v. 11 Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1950 (2009). “While legal 12 conclusions can provide the framework of a complaint,” neither 13 legal 14 sufficient, and such statements are not entitled to a presumption 15 of truth. 16 a two step process for evaluation of motions to dismiss. The court 17 first identifies the non-conclusory factual allegations and the 18 court then determines whether these allegations, taken as true and 19 construed in the light most favorable to the plaintiff, “plausibly 20 give rise to an entitlement to relief.” 21 551 U.S. 89 (2007). conclusions nor conclusory Id. at 1949-50. statements are themselves Iqbal and Twombly therefore prescribe Id.; Erickson v. Pardus, 22 “Plausibility,” as it is used in Twombly and Iqbal, does not 23 refer to the likelihood that a pleader will succeed in proving the 24 allegations. 25 factual allegations, when assumed to be true, “allow[] the court 26 to draw the reasonable inference that the defendant is liable for Instead, it refers to whether the non-conclusory 2 1 the misconduct 2 plausibility standard is not akin to a ‘probability requirement,’ 3 but it asks for more than a sheer possibility that a defendant has 4 acted unlawfully.” 5 complaint may fail to show a right to relief either by lacking a 6 cognizable legal theory or by lacking sufficient facts alleged 7 under a cognizable legal theory. Balistreri v. Pacifica Police 8 Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). 9 alleged.” Iqbal, 129 S.Ct. at 1949. “The Id. (quoting Twombly, 550 U.S. at 557). A Here, defendants ask the court to look beyond the complaint’s 10 allegations and consider various exhibits. 11 judicially noticeable evidence and “documents whose contents are 12 alleged in a complaint and whose authenticity no party questions, 13 but which are not physically attached to the pleading” without 14 transforming 15 judgment. 16 overruled on other grounds by Galbraith v. County of Santa Clara, 17 307 F.3d 1119, 1124 (9th Cir. 2002). 18 judicial notice of the various recorded documents under Fed. R. 19 Evid. 201. 20 allegations the court does not accept the allegations as true. See 21 Mullis v. United States Bankr. Ct., 828 F.2d 1385, 1388 (9th Cir. 22 1987), Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 23 1987). The various other documents, which defendants ask the court 24 to 25 resolution of this motion. 26 //// a motion to dismiss into A court may consider a motion for summary Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), consider In this case the court takes Where these documents contradict the complaint’s under Branch, are not necessary to the court’s The court therefore disregards them. 3 II. BACKGROUND 1 2 A. Procedural History 3 Plaintiffs filed suit in state court on June 1, 2009, 4 asserting solely state law claims. Plaintiffs concurrently applied 5 for a temporary restraining order. 6 on 7 transferring the subject real property pending this litigation. June 22, 2009 preventing The state court issued a TRO defendants from assigning or 8 On August 28, 2009, plaintiffs amended their state court 9 complaint, adding claims under the Truth in Lending Act, 15 U.S.C. 10 § 1601 et seq. (“TILA”) and the Real Estate Settlement Procedures 11 Act, 12 U.S.C. § 2601 et seq. (“RESPA”). 12 also asserted seven state law causes of action, for breach of 13 contract, negligence, breach of the implied covenant of good faith 14 and fair dealing, violation of Cal. Bus. & Prof. Code § 17200, 15 violations 16 foreclosure, and violation of the California Rosenthal Act. 17 of Cal. Civ. Code §§ 2924b The amended complaint and 2924f, wrongful Defendants Saxon Mortgage, Inc., Saxon Mortgage Services, 18 Inc., and Deutsche Bank Trust Company Americas (hereinafter 19 “defendants”) timely removed to federal court. A fourth party, Old 20 Republic National Title Insurance Co., is named in the complaint, 21 but all parties agree that Old Republic is merely a nominal party 22 with no possible liability. Defendants then moved to dismiss. 23 In an order filed February 12, 2010, the court denied the 24 motion to dismiss as to plaintiffs’ RESPA claim and plaintiffs' 25 unfair competition claim insofar as the latter was predicated on 26 a violation of RESPA. Falcocchia v. Saxon Mortg., Inc., ___ F. 4 1 Supp. 2d ___, 2010 WL 582059, 2010 U.S. Dist. LEXIS 20536. 2 court otherwise granted the motion. The 3 Plaintiffs filed an amended complaint on March 5, 2010. 4 Although the court had previously referred to the August 28, 2009 5 complaint as the “first amended complaint,” plaintiffs confusingly 6 labeled the March 5 complaint as the “first amended complaint,” 7 perhaps because it was the first amendment to be filed in federal 8 court. 9 re-pleads all other claims. 10 The March 5 complaint omits the Rosenthal Act claim, but Defendants again move to dismiss all claims. Their motion 11 follows plaintiffs’ labeling. The court therefore again refers to 12 the operative complaint as the “first amended complaint” or “FAC” 13 despite the resulting potential for confusion. 14 B. Factual Background1 15 1. The Loan at Issue 16 On or about July 12, 2006, Greg Roh (who is not party to this 17 suit) approached plaintiffs 18 currently secured by plaintiffs’ property in Yuba City, California. 19 FAC ¶ 30. 20 mortgage from defendants Saxon Mortgage and Saxon Mortgage Services 21 would give them the “best deal” and “best interest rates” available 22 on the market. 23 soliciting refinancing of a loan Roh, a mortgage broker, informed plaintiffs that a Id. Plaintiffs decided to borrow $408,000. Id., Defs.’ Request 24 25 26 1 These facts are taken from the allegations in the complaint filed March 5, 2010 (the “FAC”) unless otherwise specified. The allegations are taken as true for purposes of this motion only. 5 1 for Judicial Notice filed April 9, 2010 (“RFJN”) Ex. 2. 2 amount included the $301,750.00 balance on plaintiffs’ existing 3 home loan and roughly an additional $100,000. 4 On the day Roh approached plaintiffs, July 12, 2006, plaintiffs 5 signed a deed of trust offering their Yuba City home as security 6 for this loan. 7 recorded. 8 as borrowers, Saxon Mortgage as lender, and First American Title 9 as trustee. FAC ¶ 35. FAC ¶ 36. This Def.’s RFJN Ex. 1. This deed of trust was properly The deed of trust identifies the plaintiffs Defs.’ RFJN Ex. 2, see also FAC ¶ 52 (identifying 10 Saxon Mortgage as the lender). It appears that Saxon Mortgage 11 Services was the servicer of the loan. 12 Plaintiffs argue that the loan transaction was procedurally 13 defective, in that plaintiffs did not receive (1) signed loan 14 documents at the time of closing or within a reasonable amount of 15 time after signing, FAC ¶ 32, (2) disclosure of “amount financed” 16 and “finance charge,” FAC ¶ 54 and (3) a completed notice of right 17 to cancel indicating the date that the right expires, FAC ¶ 32. 18 Plaintiff 19 documents prior to closing (although it is unclear when that would 20 have been) or time to review these documents at closing. FAC ¶ 32. 21 In addition to these alleged omissions, plaintiffs allege that 22 Roh affirmatively misrepresented plaintiffs’ income on the loan 23 documents and that Roh similarly misinformed plaintiffs that they 24 would have an option to refinance the loan if it ever became 25 unaffordable. 26 //// further argue that they FAC ¶ 31. 6 did not receive the loan 1 2. 2 Plaintiffs assert that “within six months of executing the 3 promissory note, defendants . . . adjusted the interest rate . . 4 . to over 10.175%.” 5 Events Subsequent to Refinancing Pls.’ Opp’n at 3.2 Defendants contend that plaintiffs first defaulted on the 6 loan at around that time, on January 1, 2007. Plaintiffs concede 7 that they defaulted, although it is unclear whether plaintiffs 8 agree with this date.3 9 each followed by a notice of trustee’s sale. Defendant issued three notices of default, The first two were 10 rescinded, and are not at issue here. Plaintiffs represent that 11 during this time, they were in negotiations with defendants Saxon 12 Mortgage and Saxon Mortgage Services.4 13 During this time--on April 18, 2007--Saxon Mortgage assigned 14 its beneficial interest under the promissory note and deed of trust 15 to defendant Deutsche Bank Trust Company Americas. Defs.’ RFJN Ex. 16 4 (recorded notice of assignment). 17 Saxon Mortgage Servicing remained the “attorney-in-fact” for the Pursuant to this assignment, 18 19 20 21 22 23 24 25 26 2 Although this allegation does not appear in the FAC, the court includes it here because it pertains to plaintiffs’ ability to show equitable tolling or estoppel. 3 Defendants cite a notice of default recorded on April 23, 2007 in purported support of the Jan. 1, 2007 date. Defs.’ RFJN Ex. 3. This notice of default asserts that plaintiffs were in default at that time. While the court takes judicial notice of the fact that the document was filed and of its contents, this notice does not extend to the purported truth of representations contained therein. 4 The court notes that once Saxon Mortgage assigned its interest in the deed of trust, it is not clear what authority Saxon Mortgage would have had to conduct such negotiations. 7 1 beneficiary, 2 Mortgage Servicing continued to service the loan. 3 which the court understands to mean that Saxon Id. Well after Saxon Mortgage has assigned its interest, on May 4 13, 2008, the third notice of default was recorded. FAC ¶ 38, 5 Defs.’ RFJN Ex. 10.5 6 Republic Default Management Services, who had not previously been 7 involved in the loan. FAC ¶ 38, Defs.’ RFJN Ex. 10. 8 on May 14, 2009, Old Republic recorded a document substituting Old 9 Republic for First American Title as trustee. Defs.’ RFJN Ex. 11.6 10 Old Republic also recorded a third notice of trustee’s sale. 11 Defs.’ RFJN Ex. 12. 12 Id., FAC ¶ 41. This notice of default was issued by Old A year later, The trustee’s sale was set for June 2, 2009. 13 Plaintiffs argue that May 13, 2008 notice of default and 14 subsequent notice of trustee sale should have been mailed to 15 plaintiffs’ “legal mailing address,” but that they were not, 16 despite defendants’ knowledge of this address. FAC ¶¶ 39, 40, 43. 17 After receiving notice of the scheduled June 2, 2009 trustee’s 18 sale, plaintiffs sent letters to defendants stating plaintiffs’ 19 intent 20 foreclosure 21 foreclosure sale, and demanding that defendant Old Republic Default 22 Management Services immediately stay all further action and comply to seek a sale, temporary demanding restraining immediate order to enjoin cancellation of the the 23 5 24 25 26 Defendants state that this notice was recorded on May 14, 2009. 6 The substitution of trustee bears a notarized signature dated Jan. 21, 2009, but the document was apparently recorded on the above date. 8 1 with California Civil Code section 2924. 2 did not respond. 3 FAC ¶ 45. Defendants Plaintiffs also sent a separate letter to Saxon Mortgage and 4 Saxon Mortgage Services which “demand[ed] to cancel the 5 foreclosure sale under the . . . Deed of Trust [and] to rescind the 6 loan for various violations under [TILA]” FAC ¶ 46. 7 assert that this letter constituted a “qualified written request” 8 (“QWR”) under RESPA. 9 this letter was sent, plaintiff’s opposition states that it was Id. Although the FAC does not specify when Opp’n, 3.7 10 sent March 26, 2008. 11 Services did not respond. Plaintiffs Saxon Mortgage and Saxon Mortgage FAC ¶ 47 12 After the third notice of trustee sale was recorded on May 14, 13 2009, defendants refused to postpone this sale. On June 1, 2009, 14 plaintiffs filed a complaint in state court. III. ANALYSIS 15 16 The operative complaint presents federal claims under TILA 17 and RESPA. 18 TILA damages claim for failure to respond to a notice of 19 rescission. 20 continues to exercise supplemental jurisdiction over the six 21 state law claims pursuant to 28 U.S.C. § 1367. 22 A. 23 The court denies the motion to dismiss as to the Because a federal claim remains, the court TILA Plaintiffs bring claims for civil damages and for 24 7 25 26 Plaintiffs confusingly allege that this letter was sent prior to the recording of the third notices of default and trustee’s sale, but plaintiffs also imply that this letter was sent in response to these notices. Compare FAC ¶ 46 with Opp’n, 3. 9 1 rescission under TILA. As the court previously explained, these 2 two remedies are governed by distinct statutory frameworks.8 3 1. Rescission 4 TILA provides a right to rescind a loan. 5 1635(a)-(b). 6 remorse.” 7 1989). 8 misunderstanding, or misconduct. 9 15 U.S.C. § A borrower may rescind merely because of “buyer’s Hefferman v. Bitton, 882 F.2d 379, 383 (9th Cir. Thus, rescission need not be predicated on any mistake, Ordinarily a borrower must rescind within three days of the 10 initial transaction. 11 of the right to cancel, however, the period for rescission 12 extends to three years. 13 F.2d at 383. 14 that this notice was not provided, such that the three year 15 period applies here. 16 this period expired on July 12, 2009. 17 Where the borrower does not receive notice 15 U.S.C. § 1635(f), Hefferman, 882 For purposes of this motion, defendants concede Def.’s Reply at 5. The parties agree that The court previously held that this period was a 18 jurisdictional statute of repose to which neither tolling nor 19 estoppel could apply. 20 (citing Miguel v. Country Funding Corp, 309 F.3d 1161, 1164 (9th 21 Cir. 2002) and Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 22 (1998)). 23 12, 2009, but they did not bring a judicial action seeking Order filed Feb. 12, 2010 at 11-13 Plaintiffs sought to rescind their loan prior to July 24 8 25 26 The court must confess that it is difficult to rationalize the court's rulings since, judging by the parties' previous conduct, it is not at all clear that they bothered to read the court's previous order. 10 1 rescission until after that time. 2 rescission claim was therefore untimely, although the court 3 noted that plaintiffs could perhaps assert a civil damages claim 4 for failure to respond to the initial rescission notice. 5 13. 6 This court held that the Id. at Despite the prior ruling, plaintiffs have re-pled their 7 TILA rescission claim, but plaintiffs have not alleged any 8 additional facts that would cause the claim to fare better this 9 time around. Even more curiously, although defendants 10 previously succeeded by arguing that this claim was untimely, 11 defendants make no such assertion in their present motion. 12 Seeing no reason to revisit the prior decision, the court 13 hold that the TILA rescission claim is untimely. Because 14 plaintiffs have previously been warned about this defect and 15 failed to remedy it, dismissal of this claim is with prejudice. 16 2. Civil Damages 17 Claims for damages under TILA are governed by a separate 18 framework. Plaintiffs assert four theories of TILA liability. 19 Defendants argue that these theories are untimely and meritless. 20 As to timeliness, as explained in the prior order, TILA provides 21 a one year statute of limitations for civil damages claims, 22 although this period may be subject to equitable tolling or 23 estoppel. 24 910, 914 (9th Cir. 1986). 25 P. 12(b)(6) motion to dismiss a claim as untimely but the 26 applicable statute of limitations is one subject to tolling or 15 U.S.C. § 1640(e), King v. California, 784 F.2d When a defendant files a Fed. R. Civ. 11 1 estoppel, the court must deny the motion where “the complaint, 2 liberally construed in light of our ‘notice pleading’ system, 3 adequately alleges facts showing the potential applicability of 4 the equitable tolling doctrine.” 5 Diego, 5 F.3d 1273, 1277 (9th Cir. 1993). 6 7 With this background, the court discusses the four theories individually. a. 8 TILA Damages Claim for Failure to Respond to Rescission Notice 9 10 Cervantes v. City of San Plaintiffs allege that they sent a timely notice of 11 rescission and that defendants improperly failed to respond to 12 this notice. 13 Although a judicial claim for rescission must be filed within 14 three years of the initial transaction, a damages claim for 15 failure to respond to a rescission notice can be filed within 16 one year of the alleged failure, regardless of whether this 17 falls outside of the three year period for rescission itself. 18 Order at 13. 19 was sent in May of 2009, three months before plaintiffs first 20 alleged a TILA violation and less than a year before the present 21 complaint was filed. 22 barred. 23 FAC ¶ 111; see also 15 U.S.C. §§ 1635(g), 1640(a). It appears that at least one request to rescind Accordingly, this claim is not time Defendants raise two other challenges to this theory of 24 liability. First, they argue that the exhibits before the court 25 demonstrate that plaintiffs received all required disclosures 26 except the notice of the right to rescind. 12 Reply at 5. 1 Defendants contend that failure to inform plaintiffs of the 2 right to rescind merely extended the “statute of limitations” in 3 which plaintiffs could seek rescission on the basis of some 4 other misconduct. 5 explained above, section 1635(a) is a “buyer’s remorse” 6 provision, such that rescission need not be predicated on a TILA 7 violation.9 Defendants mischaracterize TILA. As 8 Defendants’ second argument is that this claim fails 9 because plaintiffs have failed to allege an ability to tender 10 the loan proceeds. Under TILA’s default rescission procedure, a 11 borrower must tender the loan proceeds, minus certain amounts, 12 after the lender has cancelled any security interest and 13 returned any money and property (such as earnest money) to the 14 borrower. 15 modify this procedure, and the Ninth Circuit has held that 16 courts generally should require tender as a prerequisite to 17 rescission. Yamamoto v. Bank of N.Y., 329 F.3d 1167, 1172 (9th 18 Cir. 2003). Defendant has identified no authority, however, 19 suggesting that the initial notice of rescission was required to 20 allege an ability to tender the loan proceeds or that a borrower 21 was free to ignore an otherwise proper rescission notice lacking 22 such an allegation. 23 complaint in a judicial action for rescission need not contain 24 any such allegation, because the decision under Yamamoto of when 15 U.S.C. § 1635(b). TILA grants courts authority to Indeed, this court has held that a 25 9 26 The court does not decide whether these other disclosures were in fact made. 13 1 to require tender is better made at the time of summary 2 judgment. 3 S-09-0931, 2010 U.S. Dist. LEXIS 5671, *32 (E.D. Cal. Jan. 5, 4 2010). 5 an ability to tender the loan proceeds does not bar plaintiffs 6 from bringing a damages claim for failure to respond to the 7 notice of rescission.10 8 b. Accordingly, the fact that plaintiffs have not alleged TILA Damages Claims Arising from The Initial Transaction 9 10 Baldain v. Am. Home Mortg. Servicing, Inc., No. CIV. Plaintiffs’ TILA damages claim also asserts three theories 11 of liability arising from the initial transaction. 12 first theory was raised in plaintiffs’ prior complaint. 13 Plaintiffs allege that defendants failed to make disclosures or 14 provide documents at the loan’s origination. 15 period for a claim based on these omissions would normally have 16 expired on July 12, 2007. Plaintiffs first filed a TILA damages 17 claim on August 28, 2009. In the prior order, the court held 18 that because plaintiffs were necessarily able to determine which 19 documents they did and did not receive, plaintiffs had not shown 20 a possibility of equitable tolling or estoppel. 21 The claim was therefore untimely. Id. Only the The limitations Order at 9. In the operative 22 23 24 25 26 10 The parties have not addressed whether a lender is obliged to respond a notice of rescission even if the borrower does not have a right to rescind. Because the court holds that plaintiffs have alleged facts supporting a right to rescind, the court does not reach this issue. 14 1 complaint plaintiffs re-plead this claim,11 but provide no added 2 allegations or theory as to why plaintiffs were unaware of these 3 failures at the time of the initial transaction or as to 4 plaintiffs’ inability to bring suit at that time. 5 reasons explained in the prior order, the claim is untimely 6 insofar as it is based on these allegations. For the 7 Second, plaintiffs now allege that defendants “provid[ed] 8 inaccurate information . . . relating to the terms of the loan 9 [and] . . . misrepresent[ed] . . . finance charge details and 10 the annual percentage rate.” FAC ¶ 109. This court has 11 previously held that allegations of inaccurate information may 12 demonstrate a possibility of tolling for the period of time in 13 which the borrower could not have discovered the inaccuracy 14 despite the exercise of reasonable diligence, and thereby defeat 15 a motion to dismiss. 16 LP, No. S-09-1316, 2009 U.S. Dist. LEXIS 102285, *52-*53, 2009 17 WL 3429622, *17 (E.D. Cal. Oct. 22, 2009). 18 inaccuracies excuse at most six months of delay, which is 19 insufficient to render the claim timely. 20 the annual percentage rate unexpectedly increased within six 21 months of the initial transaction. See Champlaie v. BAC Home Loans Servicing, Here, however, any Plaintiffs assert that Plaintiffs were on notice of 22 11 23 24 25 26 Plaintiffs allege that defendants violated TILA by “failing to provide the required disclosures . . . failing to make required disclosures clearly and conspicuously in writing; failing to timely deliver . . . certain notices required by statute; placing terms prohibited by statute into the transaction; . . . failing to disclose all finance charge details and the annual percentage rate based upon properly calculated and disclosed finance charges and amounts financed.” FAC ¶ 109. 15 1 the alleged misrepresentations at that time. 2 not demonstrated a “possibility” that the claim based on such 3 misrepresentation filed two and a half years later was timely. 4 Plaintiffs have Third, plaintiffs allege that defendants extended credit to 5 plaintiffs without regard to plaintiffs’ ability to pay, 6 pursuant to a broader pattern or practice. 7 15 U.S.C. § 1639(h). 8 could not discover the basis for this claim until plaintiffs 9 learned the terms of the loan they received and thus the size of FAC ¶ 110, see also It is at least possible that plaintiffs 10 plaintiffs’ obligation. As noted in the previous paragraph, 11 however, at the very least, plaintiffs were obliged to 12 diligently investigate these terms once their interest rate 13 spiked around early 2007. 14 known all the information necessary to ultimately prove their 15 claim at that time, plaintiffs’ own assertions demonstrate that 16 they had “the information necessary to bring suit.” 17 v. Chase Manhattan Bank, 465 F.3d 992, 1004 (9th Cir. 2006). 18 such, plaintiffs have not shown a possibility of equitable 19 tolling for a TILA claim based on lending without regard to 20 ability to repay. Although plaintiffs might not have Lien Huynh As Id. 21 Accordingly, plaintiffs’ TILA claim is dismissed except 22 insofar as it seeks civil damages for defendants’ failure to 23 respond to a notice of rescission. 24 attempt to plead this claim, yet plaintiffs have failed to cure 25 the previously identified defects. 26 claim is dismissed, dismissal is with prejudice. 16 This is plaintiffs’ second To the extent that this 1 B. Real Estate Settlement Procedures Act 2 Plaintiffs claim that Saxon Mortgage and Saxon Mortgage 3 Services violated RESPA by failing to respond to a qualified 4 written request as required by 12 U.S.C. § 2605(e)(2). 5 118. 6 and practice of such violations. 7 previously argued that this claim was untimely because it was 8 brought more than three years beyond the initial transaction. 9 The court held that the statute of limitations runs from the FAC ¶ Plaintiffs further allege that defendants have a pattern FAC ¶ 119. Defendants 10 time defendants failed to respond to the QWR and that the claim 11 was therefore brought within the limitations period. 12 14-15. 13 Order at Defendants now argue that the RESPA claim should be 14 dismissed because plaintiffs have not alleged facts sufficient 15 to support the conclusion that plaintiffs sent a QWR to 16 defendants. 17 18 19 20 21 22 RESPA defines a QWR as: a written correspondence, other than notice on a payment coupon or other payment medium supplied by the servicer, that (i) includes, or otherwise enables the servicer to identify, the name and account of the borrower; and (ii) includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower. 23 12 U.S.C. § 2605(e)(1)(B). Plaintiffs allege that they sent a 24 “QWR” to defendants that “demand[ed] to cancel the 25 foreclosure sale under the . . . Deed of Trust [and] to rescind 26 the loan for various violations under [TILA].” 17 FAC ¶ 46. 1 Plaintiffs make no other allegations regarding the content of 2 this purported QWR, nor have plaintiffs provided a copy of the 3 letter. 4 request for information. 5 violations amount to a statement that “the account [was] in 6 error.” 7 defect was not previously addressed by the court, dismissal is 8 without prejudice. 9 C. 10 Plaintiffs have not alleged that they ever sent a Nor do any of the alleged TILA Accordingly, this claim is dismissed. Because this Contract Claims Plaintiffs’ first cause of action is labeled as an action 11 for breach of contract or for rescission of contract.12 12 court discusses these two theories separately. 13 bring a claim for breach of the implied covenant of good faith 14 and fair dealing. The Plaintiffs also 15 1. Breach of Contract 16 Plaintiffs allege that the Saxon defendants, acting through 17 the mortgage broker Roh, contracted to “assist Plaintiffs in 18 obtaining a mortgage loan and to provide Plaintiffs with a loan 19 commitment under various said affordable terms which were to be 20 set out in a promissory note.” FAC ¶ 65. “Plaintiffs agreed to 21 22 23 24 25 26 12 In the prior motion, plaintiffs stated their non-opposition to dismissal of this claim and did not request leave to amend. Absent such a request, the court dismissed this claim with prejudice. Plaintiff was not warned of this possibility beforehand. Insofar as plaintiff has sought to replead this claim, the conclusion that plaintiff had abandoned it was premature. Defendants have not argued that the previous dismissal with prejudice prohibits plaintiffs from repleading this claim. Plaintiff affirmatively opposes dismissal in the instant motion. 18 1 pay mortgage Broker Greg Roh a commission for his services and 2 pay [the Saxon defendants] substantial loan origination fees and 3 commissions for their services.” 4 Id. Defendants allegedly breached this contract by “making 5 false representations . . . regarding material facts relating to 6 mortgage payments, the availability of refinancing, and 7 Plaintiffs’ qualification for the loan, by their failure to 8 exercise reasonable efforts and due diligence as promised; and, 9 by failing to secure a loan with the promised payment and 10 11 interest rate.” FAC ¶ 66. Defendants raise two arguments for dismissal of this claim. 12 First, they argue that this claim alleges an oral contract 13 concerning property, whereas such contracts must be in writing.13 14 Insofar as plaintiffs merely allege a contract regarding future 15 negotiations, defendants have not met their burden of 16 demonstrating that this contract falls within the statute of 17 frauds. 18 for breach of fiduciary duty and that such a claim cannot lie 19 against a lender. 20 not supported by the allegations in the complaint.14 Second, they argue that this claim is actually a claim Defendants’ characterization of the claim is 21 13 22 23 24 Defendants actually argue that the court previously dismissed this claim on this ground. The court dismissed the claim because “Plaintiffs concede that the oral contract claim must be dismissed,” without discussing the merits of the issue. Order at 22. 14 25 26 Confusingly, plaintiffs’ opposition does not argue that defendants have mischaracterized this claim. Plaintiffs instead argue that defendants did owe fiduciary duty. Opp’n 17. The court does not reach this contention. If plaintiffs wish to state a 19 1 Having rejected defendants’ arguments, the court 2 acknowledges that plaintiffs may be unable to show that any 3 agreement prior to the loan itself existed, that the Saxon 4 defendants were party to this agreement, that the Saxon 5 defendants had any obligations under this agreement (as opposed 6 to their obligations under the actual loan), or that the Saxon 7 defendants breached any such obligations. 8 did not raise these issues the court does not address them. 9 10 11 Accordingly, the motion to dismiss the breach of contract claim is denied. 2. Breach of the Implied Covenant of Good Faith and Fair Dealing 12 13 Because defendants It is unclear whether plaintiffs’ claim for breach of the 14 implied covenant of good faith and fair dealing is predicated on 15 the alleged initial contract discussed above or instead on the 16 promissory note and loan itself. 17 a catch-all for all alleged wrongdoing by defendants, arguing 18 that defendants breached this duty by, in plaintiffs’ words: 19 a. Failing to pay at least as much regard to Plaintiffs’ interests as to Defendants’ interests b. Failing to disclose to Plaintiffs the true nature of the loan that is the subject of this action; c. Failing to give Plaintiffs the requisite notice and disclosures. 20 21 22 23 Plaintiffs treat this claim as 24 25 26 claim for breach of fiduciary duty, plaintiffs should seek leave to amend to do so. Defendants’ present opposition, however, identifies many of the difficulties facing such a claim. 20 1 d. Directing Plaintiffs into a toxic loan. 2 e. Depriving Plaintiffs of the promised payment and interest rate on the loan; f. Initiating foreclosure proceedings on the subject property although they did not have the right to do so; g. Failing to give proper legal notice before commencing disclosure; h. and, authorizing the reporting to various credit bureaus wrongfully known that such wrongful reporting would cause derogatory information to ruin the Plaintiffs’ credit; 3 4 5 6 7 8 9 10 [i]. “[falsely representing that plaintiffs could get the ‘best deal” and “the best interest rates.”] 11 12 13 14 [j]. “failing to comply with all applicable laws.” FAC ¶¶ 78-79. Insofar as plaintiffs claim a tortious breach of the 15 implied covenant, the claim fails because plaintiffs have not 16 alleged the requisite special relationship, such as that between 17 an insurer and the insured. 18 4th 974, 979 (1993) (citing Careau & Co. v. Security Pacific 19 Business Credit, Inc., 222 Cal. App. 3d 1371, 1399, n.25 20 (1990)). 21 not oblige defendants to “pay at least as much regard to 22 Plaintiffs’ interests as to Defendants’ interests.” 23 special relationship is only necessary for enforcement of such 24 an obligation or for recovery of damages, the absence of a 25 special relationship is irrelevant to the remaining allegations 26 insofar as they seek contract damages. Kim v. Sumitomo Bank, 17 Cal. App. Absent such a relationship, the implied covenant did 21 Because a 1 Defendants alternatively argue that this claim fails 2 because the covenant is predicated on the existence of an oral 3 agreement prior to the loan itself. 4 court does not dismiss the allegation of such an agreement. 5 Moreover, it appears that the loan itself is a contract that 6 carries with it an implied covenant. As explained above, the 7 Again, having rejected the only arguments raised by 8 defendants, the court denies the motion to dismiss this claim 9 without discussing whether the claim is otherwise proper. 10 3. Contractual Rescission 11 Plaintiffs alternatively allege that “no contract existed 12 between Plaintiffs and [the Saxon defendants] because of mutual 13 mistake relating to the basic or material contractual terms.” 14 FAC ¶ 69. 15 rather than any preliminary contract. 16 Plaintiffs apparently seek to void the loan itself, Defendants’ sole argument for dismissal of this claim is 17 that rescission under state law requires tender of the benefits 18 the rescinding party has received under the contract, but that 19 plaintiffs have not alleged an ability to make tender. 20 California law a credible tender offer is a prerequisite to a 21 rescission claim. 22 2009 U.S. Dist. LEXIS 79094, *23 (E.D. Cal. Sept. 3, 2009) 23 (Karlton, J.). 24 explained that the tender may in some circumstances that result 25 may be made possible by refinancing of the loan, which may in 26 turn only be possible once rescission has occurred. Under Yulaeva v. Greenpoint Mortg. Funding, Inc., In the TILA context, the undersigned has 22 Baldain v. 1 Am. Home Mortg. Servicing, Inc., 2010 U.S. Dist. LEXIS 5671, 2 *28-*32 (E.D. Cal. Jan. 5, 2010). 3 refinancing may be part of an offer to tender under California 4 law. 5 defendants will need to wait until summary judgment to challenge 6 whether plaintiffs have any evidence to demonstrate the 7 credibility of this offer. 8 must demonstrate immediate ability to tender, whether through 9 refinancing or otherwise, at the pleading stage.15 10 11 D. It appears that such Insofar as plaintiffs have stated their intent to tender, It does not appear that plaintiffs Negligence Plaintiffs’ prior complaint alleged that defendants were 12 negligent in “(1) directing plaintiffs into a loan they were not 13 qualified for, . . . and (2) taking payments to which they were 14 not entitled, charging fees they were not entitled to charge and 15 making or otherwise authorizing reporting to various credit 16 bureaus wrongfully.” 17 court dismissed this claim in part on the ground that defendants 18 did not owe an applicable duty to plaintiffs and in part because 19 plaintiffs had not alleged a breach of any applicable duty. 20 at 16-17. 21 Order at 16 (modifications omitted). The Id. Plaintiffs’ current complaint abandons these theories of 22 negligence, and is instead predicated solely on the failure to 23 make the disclosures required by TILA. FAC ¶¶ 72-73. This 24 15 25 26 Of course, for the reasons stated in Yamamoto v. Bank of N.Y., 329 F. 3d 1167 (9th Cir. 2003) the court will not rescind the contract on the mere hope that plaintiffs will be able to make tender, through refinancing or otherwise. 23 1 court has previously held that as a matter of state law, failure 2 to make these disclosures may support a claim for negligence. 3 Champlaie, 2009 U.S. Dist. LEXIS 102285, *75. 4 Defendants argue that this claim should be dismissed as 5 untimely. Without citation to authority, defendants assert that 6 “Because Plaintiffs base this claim on requirements under 7 federal substantive law, namely TILA, it follows that the 8 Statute of Limitations from TILA controls.” Mem. at 16. 9 The issue is not as straightforward as defendants assume. 10 The Ninth Circuit has held that states’ ability to effectively 11 extend federal statutes of limitations is a question of 12 preemption. Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001 (9th 13 Cir. 2008). TILA itself does not preempt plaintiffs’ negligence 14 claim, because TILA contains a broad savings clause. 15 § 1610(b), Silvas, 514 F.3d at 1007. 16 nonetheless does not limit the preemptive effect of other 17 federal law. 18 held that a regulation issued by the Office of Thrift 19 Supervision pursuant to the Home Owners’ Loan Act ("HOLA"), 12 20 C.F.R. § 560.2, may preempt state law claims predicated on TILA 21 violations. 22 593 (8th Cir. 2009), State Farm Bank, FSB v. Reardon, 539 F.3d 23 336, 344 (6th Cir. 2008), Flagg v. Yonkers Sav. & Loan Ass’n, 24 FA, 396 F.3d 178, 182-84 (1st Cir. 2005). 25 26 15 U.S.C. TILA’s savings clause Silvas, 514 F.3d at 1007. To the contrary, Silvas Id. at 1004; see also Casey v. FDIC, 583 F.3d 586, The OTS regulation at issue in Silvas “occupies the entire field of lending regulation for federal savings associations.” 24 1 12 C.F.R. § 560.2 (emphasis added). Such associations are those 2 chartered under HOLA § 5(o), 12 U.S.C. § 1464(o). 3 §§ 541.2, 541.11. 4 an entity before the defendant may benefit from the preemption 5 defense recognized by Silvas. 6 No. CV F 07-1454, 2010 U.S. Dist. LEXIS 21837, *20-*24 (E.D. 7 Cal. Feb. 18, 2010) (Ishii, J.) (denying a motion to dismiss in 8 part because, in essence, defendant had not shown that it was a 9 federal savings association), Ibarra v. Loan City, No. See 12 C.F.R. A defendant must demonstrate that it is such Yang v. Home Loan Funding, Inc., 10 09-CV-02228, 2010 U.S. Dist. LEXIS 6583, *13 (S.D. Cal. Jan. 27, 11 2010) (beginning the preemption analysis by noting that 12 defendant had shown that it was a federally regulated savings 13 association). 14 Here, defendants have not offered any argument or evidence 15 as to the threshold question of whether they are federal savings 16 associations. 17 for dismissal of this claim. 18 applicable burdens on their motion to dismiss, the motion is 19 denied as to plaintiffs’ negligence claim.16 20 E. 21 Nor have defendants raised any other arguments Because defendants bear all Violations of California Civil Code §§ 2924b and 2924f Plaintiffs’ fifth cause of action argues that all 22 defendants violated California Civil Code sections 2924b and 23 2924f by failing to send the notices of default, trustee’s sale, 24 25 26 16 The court does not decide whether, if defendants had shown that they were federal savings associations, the negligence claim would be preempted. 25 1 and substitution of trustee to the plaintiffs’ “legal mailing 2 address.” 3 plaintiffs had not alleged that they failed to receive these 4 documents or that such receipt was delayed; thus, it appeared 5 that any violation was harmless. FAC ¶¶ 87-90. The court dismissed this claim because Order at 18. 6 Plaintiffs now allege that they “failed to receive the 7 notices in a timely manner and such failure . . . caused an 8 undue delay . . . whereby Plaintiffs lost an opportunity to have 9 initially taken preventive action to avoid the foreclosure 10 sale.” 11 inadequate in that it fails to specify what action plaintiffs 12 would have taken. 13 dismissal of this claim. 14 FAC ¶ 90. Defendants argue that this allegation is Defendants make no other argument for It does not appear that such allegations are required in 15 the complaint itself. Plaintiffs respond, in their opposition 16 memorandum, that such actions “would have included an attempted 17 loan refinance at a lower interest rate, a short sale, or a loan 18 modification with the existing Defendant lenders.” 19 It appears unlikely that defendants would have agreed to 20 refinance or modify the loan had only plaintiffs made such 21 request a few days earlier. 22 reasonable inference that a short sale or refinancing through 23 another lender was an available “preventative action” that would 24 have been facilitated by earlier receipt of notice. 25 reasonable inference suffices at this stage of the proceedings. 26 //// Opp’n at 22. At the very least, however, it is a 26 Such a 1 2 F. Wrongful Foreclosure Plaintiffs allege that the threatened foreclosure is 3 wrongful because (1) defendant Old Republic National Title 4 Insurance Co., who recorded the notices of default and trustee’s 5 sale, was not authorized to act on defendants’ behalf, FAC ¶ 98; 6 (2) the notices were not properly sent to plaintiffs, FAC ¶ 98 7 and FAC ¶¶ 87-90; (3) plaintiffs’ notice of rescission deprived 8 defendants of the right to foreclose, FAC ¶¶ 99-100; (4) 9 defendants failed to respond to the qualified written request 10 under RESPA, FAC ¶¶ 99-100; and (5) “Defendants have failed to 11 suspend the foreclosure action to allow for consideration of 12 other options,” FAC ¶ 102. 13 Defendants make two arguments for dismissal. First, they 14 argue that because the RESPA claim fails, failure to respond to 15 the QWR cannot support a claim for wrongful foreclosure. 16 court agrees. 17 RESPA does not provide for injunctive relief, RESPA cannot serve 18 as the basis for a wrongful foreclosure claim. 19 Second, defendants argue that plaintiffs’ allegation regarding 20 consideration of alternative foreclosure options is contradicted 21 by plaintiff John Falcochia’s own declaration submitted to state 22 court prior to removal. 23 been working with the Loss Mitigation Department at Saxon 24 Mortgage Incorp. and have attempted to obtain a loan 25 modification with Saxon and defer outstanding interest payments 26 owed so as to avoid the loss of the subject property.” The Moreover, as the prior order explained, because Order at 20. He declares “since May, 2008[] I have 27 June 1, 1 2009 Decl. of John J. Falcocchia ISO Ex Parte Application for 2 TRO, ¶ 4. 3 that such negotiations occurred and accounted for the year delay 4 between the third notice of default and the third notice of 5 trustee’s sale. In opposing this motion, plaintiffs do not dispute Thus, this theory fails. 6 Although the court dismisses these two bases for the 7 wrongful foreclosure claim, defendants have not addressed the 8 other three alleged bases. 9 part. 10 G. Accordingly, this claim survives in Violations of California Business and Professions Code Sec. 11 17200 12 California’s Unfair Competition Law, Cal. Bus. & Prof. Code 13 § 17200, (“UCL”) proscribes “unlawful, unfair or fraudulent” 14 business acts and practices. 15 prohibited by other law. 16 dismiss as to various other claims which provide the requisite 17 predicate unlawful conduct.17 18 regard and in light of the inadequacy of the parties’ briefing, 19 the court does not decide whether plaintiffs have also 20 sufficiently alleged claims for unfair or fraudulent conduct. “Unlawful” conduct is that Here, the court denies the motion to Because the claim survives in this 21 22 23 24 25 26 17 Although the court denies defendants’ motion as to the contract and good faith claims, contract claims cannot constitute “unlawful” conduct for purposes of an unfair competition claim. See Boland, Inc. v. Rolf C. Hagen (USA) Corp., ___ F.Supp.2d. ___, ____, 2010 WL 493422, *12, 2010 U.S. Dist. LEXIS 9567, *41 (E.D. Cal. Feb. 3, 2010) (citing Puentes v. Wells Fargo Home Mortgage, Inc., 160 Cal. App. 4th 638, 645 (2008) and Smith v. Wells Fargo Bank, N.A., 135 Cal.App.4th 1463, 1484 (2005)). The remaining surviving claims provide the predicate unlawful activity. 28 IV. Conclusion 1 2 3 4 For the reasons stated above, defendants’ motion to dismiss (Dkt. No. 26) is GRANTED IN PART. 1. The court ORDERS as follows: Plaintiffs’ TILA claim is DISMISSED WITH PREJUDICE 5 except insofar as this claim seeks damages for the 6 failure to respond to notice of rescission. 7 2. 8 9 Plaintiffs’ RESPA claim is DISMISSED WITHOUT PREJUDICE. 3. Plaintiffs’ wrongful foreclosure claim is DISMISSED 10 WITH PREJUDICE solely insofar as it is predicated on 11 violation of RESPA or the allegation that defendants 12 failed to suspend foreclosure activities to allow 13 negotiation of a loan modification. 14 4. Defendants’ motion to dismiss is otherwise DENIED. 15 Plaintiffs are granted 21 days to file an amended complaint 16 seeking to cure the above identified defects with plaintiffs’ 17 RESPA claim. 18 for any other purposes, plaintiffs must move for leave to amend 19 under Fed. R. Civ. P. 15 and 16. 20 Jan. 11, 2010. 21 22 Should plaintiffs seek to amend their complaint See Scheduling Order filed Both parties are warned that evidence that a party failed to read this order will result in sanctions. 23 IT IS SO ORDERED. 24 DATED: May 27, 2010. 25 26 29
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