Benham v. Aurora Loan Services et al, No. 3:2009cv02059 - Document 31 (N.D. Cal. 2009)

Court Description: ORDER granting 14 Motion to Dismiss; denying 16 Motion to Strike (sclc2, COURT STAFF) (Filed on 9/1/2009)

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Benham v. Aurora Loan Services et al Doc. 31 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 AYISHA BENHAM, ) ) Plaintiff, ) ) v. ) ) ) AURORA LOAN SERVICES; BNC ) MORTGAGE INC.; ROBERT E. WEISS, INC.; MORTGAGE ELECTRONIC ) REGISTRATION SYSTEMS, INC.; UNITED ) ) HOME MORTGAGE CORPORATION; ASAD ) ZAFARI; KEITH HOUSTEAD; and DOES ) 1-20, inclusive, ) ) Defendants. ) ) No. C-09-2059 SC ORDER GRANTING MOTION TO DISMISS AND DENYING MOTION TO STRIKE 16 17 I. INTRODUCTION 18 This matter comes before the Court on the Motion to Dismiss 19 Plaintiff's First Amended Complaint and the Motion to Strike filed 20 by Defendant Mortgage Electronic Registration Systems, Inc. 21 ("MERS"). 22 Strike").1 23 filed an Opposition to the Motion to Dismiss and the Motion to 24 Strike. 25 Nos. 26, 27. 26 Motion to Dismiss and DENIES the Motion to Strike. Docket Nos. 14 ("Mot. to Dismiss"), 16 ("Mot. to Plaintiff Ayisha Benham ("Plaintiff" or "Benham") Docket No. 24 ("Opp'n"). MERS submitted replies. Docket For the following reasons, the Court GRANTS the 27 1 28 None of the other Defendants participated in MERS' motions to dismiss and strike. 1 II. BACKGROUND 2 On August 2, 2006, Plaintiff received a mortgage loan for 3 $430,000 from BNC Mortgage, Inc., secured by property located at 4 4350 Fran Way, Richmond, Contra Costa County, California. 5 for Judicial Notice ("RJN") Ex. 1 ("Deed of Trust").2 6 listed as the nominee for lender, and the beneficiary of the Deed 7 of Trust. 8 became the trustee under the Deed of Trust. 9 ("Substitution of Trustee"). United States District Court For the Northern District of California 10 Id. Request MERS is On May 3, 2007, Robert E. Weiss, Inc. ("Weiss") Id. Ex. 2 On May 10, 2007, Weiss issued a Notice of Default and Id. Ex. 3 ("Notice of 11 Election to Sell Under Deed of Trust. 12 Default"). 13 Sale indicating that the property would be sold on September 14, 14 2007. 15 2007, MERS assigned all beneficial interest under the Deed of 16 Trust to Aurora Loan Services LLC ("Aurora"). 17 ("Corporate Assignment of Deed of Trust"). On August 16, 2007, Weiss issued a Notice of Trustee's Id. Ex. 4 ("Notice of Trustee's Sale"). On August 23, Id. Ex. 5 18 2 19 20 21 22 23 24 25 26 27 28 MERS submitted a request for judicial notice in support of the Motion to Dismiss. Docket No. 15. The request includes copies of the Deed of Trust, Substitution of Trustee, Notice of Default, Notice of Trustee's Sale, Corporate Assignment of Deed of Trust, Second Notice of Trustee's Sale, and Trustee's Deed Upon Sale. These documents were recorded in the Contra Costa County Recorder's Office. All of these items are public records and properly subject to judicial notice. See Hotel Employees & Rest. Employees Local 2 v. Vista Inn Mgmt. Co., 393 F. Supp. 2d 972, 978 (N.D. Cal. 2005). The request also includes a copy of the docket of the Bankruptcy Court, Northern District of California, Bankruptcy Petition No. 0742959. This is a matter of public record and not subject to reasonable dispute. The Court may take judicial notice of these documents without converting MERS' Motion to Dismiss into a motion for summary judgment because these documents form the basis of Plaintiff's claims. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005); United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). The Court GRANTS MERS' request for judicial notice. 2 1 On September 13, 2007, Plaintiff filed a Chapter 11 2 bankruptcy petition in the Oakland Division of the Bankruptcy 3 Court for the Northern District of California. 4 ("Bankruptcy Petition No. 07-42959"). 5 Bankruptcy Court granted MERS' motion for relief from the stay on 6 foreclosure proceedings. 7 Weiss issued a new Notice of Trustee's Sale, and the property was 8 sold to Aurora on February 20, 2009. 9 Trustee's Sale"); Ex. 8 ("Trustee's Deed Upon Sale"). United States District Court For the Northern District of California 10 Id. Ex. 6 On October 27, 2008, the Id. Docket No. 70. On January 23, 2009, Id. Ex. 7 ("Second Notice of In her First Amended Complaint ("FAC"), Plaintiff raises a 11 total of ten causes of action against seven defendants. 12 51-130. 13 Dismiss at 1. 14 action that apply to MERS. MERS moves to be dismissed from the case. FAC ¶¶ Mot. to The Motion to Dismiss challenges only the causes of See id. at 3-14. 15 16 III. LEGAL STANDARD 17 A. 18 A motion to dismiss under Federal Rule of Civil Procedure Motion to Dismiss 19 12(b)(6) "tests the legal sufficiency of a claim." 20 Block, 250 F.3d 729, 732 (9th Cir. 2001). 21 on the lack of a cognizable legal theory or the absence of 22 sufficient facts alleged under a cognizable legal theory. 23 Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 24 1990). 25 construed in the light most favorable to the nonmoving party. 26 Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 27 1996). 28 Navarro v. Dismissal can be based Allegations of material fact are taken as true and However, the court need not accept as true legal 3 United States District Court For the Northern District of California 1 conclusions couched as factual allegations. Ashcroft v. Iqbal, 2 129 S.Ct. 1937, 1949-50 (2009). 3 elements of a cause of action, supported by mere conclusory 4 statements, do not suffice." 5 pleaded factual allegations, the court should assume their truth, 6 but a motion to dismiss should be granted if the plaintiff fails 7 to proffer "enough facts to state a claim for relief that is 8 plausible on its face." 9 547 (2007). "Threadbare recitals of the Id. at 1949. With regard to well- Bell Atl. Corp. v. Twombly, 550 U.S. 544, 10 B. 11 Rule 12(f) provides that "[t]he court may strike from a Motion to Strike 12 pleading an insufficient defense or any redundant, immaterial, 13 impertinent, or scandalous matter." 14 Motions to strike are generally regarded with disfavor. 15 County of San Mateo, No. 06-3923, 2007 WL 902551, at *1 (N.D. Cal. 16 Mar. 22, 2007). 17 to "avoid the expenditure of time and money that must arise from 18 litigating spurious issues by dispensing with those issues prior 19 to trial." 20 Cir. 1993), rev'd on other grounds, 510 U.S. 517 (1994). Fed. R. Civ. P. 12(f). Ganley v. The essential function of a Rule 12(f) motion is Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th 21 22 23 24 25 IV. DISCUSSION A. Motion to Dismiss 1. Rosenthal Fair Debt Collection Practices Act Plaintiff's second cause of action alleges that MERS and 26 other Defendants violated the Rosenthal Fair Debt Collection 27 Practices Act ("RFDCPA" or "Rosenthal Act"), Cal. Civ. Code §§ 28 4 United States District Court For the Northern District of California 1 1788 et seq. 2 a deed of trust does not invoke the statutory protections of the 3 RFDCPA. 4 09-1276, 2009 WL 2136777, at (N.D. Cal. July 15, 2009)(dismissing 5 RFDCPA claim as to all defendants in foreclosure case); Ricon v. 6 Recontrust Co., No. 09-937, 2009 WL 2407396, at *4 (S.D. Cal. Aug. 7 4, 2009)(dismissing with prejudice plaintiff's unfair debt 8 collection claims in foreclosure case); Pittman v. Barclays 9 Capital Real Estate, Inc., No. 09-0241, 2009 WL 1108889, at *3 FAC ¶¶ 62-65. The law is clear that foreclosing on See, e.g., Rosal v. First Federal Bank of California, No. 10 (S.D. Cal. Apr. 24, 2009)(dismissing with prejudice plaintiff's 11 Rosenthal Act claim in foreclosure case); Gallegos v. Recontrust 12 Co., No. 08-2245, 2009 WL 215406, at *3 (S.D. Cal. Jan. 28, 13 2009)(dismissing RFDCPA claim in foreclosure case). 14 this point in its motion, see Mot. to Dismiss at 4-5, but 15 Plaintiff's Opposition does not address it. 16 restates the allegations in the FAC that MERS engaged in debt 17 collection conduct in violation of the RFDCPA. 18 Because foreclosing on a property pursuant to a deed of trust is 19 not the collection of a debt within the meaning of the RFDCPA, the 20 Court DISMISSES Plaintiff's second cause of action as to all 21 Defendants without leave to amend. 2. 22 23 MERS makes Instead, Plaintiff Opp'n at 11-12. Negligence Plaintiff's third cause of action is for negligence. FAC ¶¶ 24 66-71. 25 a legal duty to use reasonable care, (2) breach of that duty, and 26 (3) proximate [or legal] cause between the breach and (4) the 27 plaintiff's injury." 28 "The elements of a cause of action for negligence are (1) Mendoza v. City of Los Angeles, 66 Cal. App. 5 1 4th 1333, 1339 (Ct. App. 1998) (citation omitted). 2 alleges that Defendants "breached their duty to Plaintiff by their 3 failure to perform acts in such a manner as to not cause Plaintiff 4 harm." 5 the original mortgage note, failed to properly create original 6 documents, and failed to make the required disclosures to the 7 Plaintiff." 8 payments to which they were not entitled, charged fees they were 9 not entitled to charge and made or otherwise authorized reporting United States District Court For the Northern District of California 10 11 FAC ¶ 69. Plaintiff She alleges that Defendants "failed to maintain Id. ¶ 69. She also alleges that "Defendants took to various credit bureaus wrongfully." Id. ¶ 70. Plaintiff's FAC does not indicate which of these allegations 12 apply to MERS specifically. 13 as to the manner in which its conduct was allegedly negligent. 14 See Associated Gen. Contractors of Cal., Inc. v. Cal. State 15 Council of Carpenters, 459 U.S. 519, 526 (1983) (in deciding a 16 motion to dismiss, the court must not "assume that the [plaintiff] 17 can prove facts that it has not alleged or that the defendants 18 have violated the . . . laws in ways that have not been 19 alleged."). 20 MERS should not be required to guess In the Opposition, Plaintiff supplies more detail, but it 21 does not help her case. 22 by substituting Weiss as a trustee, and by assigning the Note and 23 the Deed of Trust to Aurora. 24 beneficiary under the Deed of Trust, it is clear that MERS had the 25 authority to substitute Weiss as the trustee. 26 v. Markowitz, 168 Cal. App. 4th 316, 334 (Ct. App. 2008)("The 27 beneficiary may make a substitution of trustee . . . 28 She alleges that MERS breached its duty Opp'n at 15. 6 However, as the See, e.g., Kachlon to conduct United States District Court For the Northern District of California 1 the foreclosure and sale."). MERS also had the authority to 2 assign its beneficial interest under the Deed of Trust to Aurora, 3 which occurred on August 23, 2007. 4 ("Any assignment of a mortgage and any assignment of the 5 beneficial interest under a deed of trust may be recorded, and 6 from the time the same is filed for record operates as 7 constructive notice of the contents thereof to all persons."). 8 The Court is not persuaded that the substitution and assignment 9 give rise to a cause of action for negligence against MERS. See Cal. Civ. Code § 2934 The 10 Court DISMISSES Plaintiff's third cause of action as to MERS with 11 leave to amend. 12 13 3. Fraud Plaintiff's sixth cause of action alleges fraud against all 14 Defendants. 15 particularity the circumstances constituting fraud . . . ." 16 R. Civ. P. 9(b). 17 where, and how" of the fraud. 18 F.3d 1097, 1106 (9th Cir. 2003) (citation omitted). 19 plaintiff must set forth what is false or misleading about a 20 statement, and why it is false." 21 GlenFed, Inc. Sec. Litig.), 42 F.3d 1541, 1548 (9th Cir. 1994). 22 "[W]here multiple defendants are asked to respond to allegations 23 of fraud, the complaint must inform each defendant of his alleged 24 participation in the fraud." 25 (quoting DiVittorio v. Equidyne Extractive Indus., 822 F.2d 1242, 26 1247 (2d Cir. 1987)). 27 28 FAC ¶¶ 91-98. Allegations of fraud "must state with Fed. The plaintiff must include "the who, what, when, Vess v. Ciba-Geigy Corp. USA, 317 "The Decker v. Glenfed, Inc. (In re Ricon, 2009 WL 2407396, at *3 Here, Plaintiff's sixth cause of action does not inform MERS 7 United States District Court For the Northern District of California 1 of the nature of its alleged participation in the fraud. 2 Opposition, Plaintiff alleges that "the entire scheme of selling 3 and transferring notes and deed, in which Defendant MERS plays a 4 central role, was fraudulent." 5 argue, in broad terms, that Defendants sold Plaintiff's loan to 6 financial entities who pooled the loans, put them into trusts, and 7 sold securities based on them. 8 result, according to Plaintiff, Defendants and MERS are no longer 9 entitled to enforce the security interest under the note and the Opp'n at 17. In her Plaintiff goes on to Id.; FAC ¶¶ 18-21, 34-36. As a 10 deed of trust. 11 explained how the activity of assigning mortgage loans to a trust 12 pool gives rise to a fraud claim against MERS. 13 this district have summarily rejected the argument that companies 14 like MERS lose their power of sale pursuant to the deed of trust 15 when the original promissory note is assigned to a trust pool. 16 See, e.g., Hafiz v. Greenpoint Mortgage Funding, Inc., No. 09- 17 1729, 2009 WL 2137393, at *2 (N.D. Cal. July 16, 2009). 18 of Trust states that "[t]he Note or a partial interest in the Note 19 (together with this Security Instrument) can be sold one or more 20 times without prior notice to Borrower." 21 Furthermore, MERS is not even attempting to enforce the security 22 interest because on August 23, 2007, MERS assigned its beneficial 23 interest under the Deed of Trust to Aurora. 24 Plaintiff's fraud cause of action as to MERS with leave to amend. 25 4. Opp'n at 17-18; FAC ¶¶ 34, 36. Plaintiff has not Other courts in The Deed Deed of Trust at 11. The Court DISMISSES Breach of the Implied Covenant of Good Faith and Fair Dealing 26 27 28 Plaintiff's ninth cause of action alleges that all Defendants 8 1 breached the implied covenant of good faith and fair dealing. 2 ¶¶ 110-118. 3 rests upon the existence of some specific contractual obligation. 4 Foley v. Interactive Data Corp. 47 Cal. 3d 654, 683-84 (1988). 5 The covenant is implied as "a supplement to the express 6 contractual covenants, to prevent a contracting party from 7 engaging in conduct which (while not technically transgressing the 8 express covenants) frustrates the other party's rights to the 9 benefits of the contract." United States District Court For the Northern District of California 10 11 FAC The implied covenant of good faith and fair dealing Love v. Fire Ins. Exchange, 221 Cal. App. 3d 1136, 1153 (Ct. App. 1990)(emphasis in original). Here, Plaintiff does not allege a contract between Plaintiff 12 and MERS, and Plaintiff does not allege that MERS breached the 13 contract. 14 allegations, the FAC still does not provide MERS with fair notice 15 of how it, as opposed to the other Defendants, breached the 16 implied covenant of good faith and fair dealing. 17 alleges Defendants breached the implied covenant by: 18 19 20 21 22 23 Id. ¶¶ 104-109. Even if Plaintiff had made these Plaintiff a. Failing to put as much consideration to Plaintiff's interests as to Defendants [sic] interests; b. Initiating foreclosure proceedings on the property despite not having the right to do so and failure to comply with California law; c. Failing to give proper notice before commencing foreclosure; d. Sending deceptive letters to Plaintiff advising Plaintiff of her ability to short sale her property when Defendant had no intention to act. 24 25 Id. ¶¶ 114. 26 apply specifically to MERS, Plaintiff seems to be alleging that 27 MERS breached the implied covenant by participating in the 28 While it is not clear which of these allegations 9 1 foreclosure of her property. 2 the interests granted by Plaintiff in the Deed of Trust, and had 3 the right to foreclose and sell the property if Plaintiff 4 defaulted on her loan. 5 good faith and fair dealing cannot "be read to prohibit a party 6 from doing that which is expressly permitted by an agreement." 7 Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 8 4th 342, 374 (1992). 9 of action against MERS with leave to amend. United States District Court For the Northern District of California 10 11 5. However, MERS held legal title to See Deed of Trust at 3. The covenant of The Court DISMISSES Plaintiff's ninth cause Unfair Business Practices Plaintiff's seventh cause of action alleges that all 12 Defendants have violated California Business and Professions Code 13 sections 17200 et seq., which prohibits any unlawful, unfair or 14 fraudulent business act or practice. 15 of action is derivative of some other illegal conduct or fraud 16 committed by a defendant, and "[a] plaintiff must state with 17 reasonable particularity the facts supporting the statutory 18 elements of the violation." 19 14 Cal. App. 4th 612, 619 (Ct. App. 1993). 20 FAC ¶¶ 99-103. This cause Khoury v. Maly's of California, Inc., Here, the Court has already dismissed Plaintiff's causes of 21 action for violation of the Rosenthal Act, fraud, negligence, and 22 breach of the implied covenant of good faith and fair dealing. 23 her Opposition, Plaintiff further alleges that MERS is not 24 entitled to transact business in California. 25 Court is not persuaded. 26 09-1160, 2009 WL 1457738, at *3 (N.D. Cal. May 26, 2009)(noting 27 that MERS may be exempt from statutory registration requirement). 28 Opp'n at 20. In The See Lomboy v. SCME Mortgage Bankers, No. 10 1 The Court has also rejected Plaintiff's arguments that MERS did 2 not have the authority to substitute Weiss as the trustee under 3 the Deed of Trust, or to assign its beneficial interest under the 4 Deed of Trust. 5 the Unfair Business Practices claim against MERS with leave to 6 amend. United States District Court The Court DISMISSES 7 B. 8 MERS moves to strike Plaintiff's references to punitive 9 For the Northern District of California See Section IV.A.2, supra. MOTION TO STRIKE damages in paragraphs 98 and 117 the FAC, and in paragraph 7 of 10 the Prayer for Relief. 11 Code Section 3294 provides that in an action "for breach of an 12 obligation not arising from contract," a plaintiff may seek 13 punitive damages "where it is proven by clear and convincing 14 evidence that the defendant has been guilty of oppression, fraud, 15 or malice." 16 Mot. to Strike at 2. California Civil Cal. Civ. Code § 3294(a). Here, the Court has focused on the claims asserted in the FAC 17 against MERS. 18 violation of the Rosenthal Act against all Defendants, the Court 19 has taken no action with respect to Plaintiff's claims against the 20 other Defendants. 21 not just MERS, engaged in fraud. 22 punitive damages are not available in California for an action 23 based solely upon breach of a contractual obligation, if the 24 action is also in tort, exemplary damages may be recovered upon a 25 proper showing of malice, fraud or oppression. 26 Am. Life Ins. Co., 54 Cal. App. 3d 331, 336 (Ct. App. 1976). 27 this early stage of the proceedings, the Court cannot determine 28 Other than dismissing Plaintiff's claim for Plaintiff alleges that all of the Defendants, See FAC ¶¶ 91-98. 11 While Miller v. Nat'l At 1 that Plaintiff is not entitled to punitive damages against one or 2 more of the Defendants. The Court DENIES MERS' Motion to Strike. 3 4 United States District Court For the Northern District of California 5 V. CONCLUSION For the reasons stated above, the Court DISMISSES the claim 6 for violation of the Rosenthal Act WITHOUT LEAVE TO AMEND as to 7 all Defendants. 8 fraud, breach of the implied covenant of good faith and fair 9 dealing, and unfair business practices WITH LEAVE TO AMEND as to The Court DISMISSES the claims for negligence, 10 Defendant Mortgage Electronic Registration Systems, Inc. 11 Court DENIES the Motion to Strike filed by Mortgage Electronic 12 Registration Systems, Inc. 13 not to file an Amended Complaint until after the Court has ruled 14 on Aurora's Motion to Dismiss, which is scheduled to be heard by 15 the Court on September 25, 2009. The The Court directs Plaintiff's attorney 16 17 IT IS SO ORDERED. 18 19 September 1, 2009 20 ____________________________ 21 UNITED STATES DISTRICT JUDGE 22 23 24 25 26 27 28 12

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