Sanchez v. U.S. Bank, N.A., No. 3:2009cv04506 - Document 36 (N.D. Cal. 2010)

Court Description: ORDER GRANTING DEFENDANT'S MOTION TO DISMISS with leave to amend. An amended complaint is due 3/8/10. (SI, COURT STAFF) (Filed on 2/22/2010)
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Sanchez v. U.S. Bank, N.A. Doc. 36 1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 LUZ M. SANCHEZ, 9 United States District Court For the Northern District of California 10 11 No. C 09-04506 SI Plaintiff, ORDER GRANTING DEFENDANT’S MOTION TO DISMISS v. U.S. BANK, N.A., et al., 12 Defendants. / 13 14 Defendant’s motion to dismiss is currently set for oral argument on February 26, 2010. Pursuant 15 to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution without oral argument 16 and VACATES the hearing. Having considered the papers submitted, and for good cause shown, the 17 Court GRANTS the motion to dismiss with leave to amend. Plaintiff’s amended complaint must be filed 18 no later than March 8, 2010. 19 BACKGROUND 20 21 This action centers around a mortgage loan taken out by plaintiff Luz Sanchez. The $424,000 22 loan, originated by Najarian Loans, Inc. (“Najarian”), was secured by plaintiff’s property located at 23 1019 Ingerson Avenue in San Francisco. Complaint at 2:16-23, 3:16-4:1; see also Deed of Trust, ex. 24 A to Def. RJN.1 The deed of trust entered into between plaintiff and Najarian was later assigned to U.S. 25 Bank, the defendant in this case. See Deed Assignment, ex. C. to Def. RJN. After plaintiff defaulted 26 1 27 28 Defendant’s request for judicial notice of the Deed of Trust, Grant Deed, and Corporate Assignment of Deed of Trust (“Deed Assignment”) is granted, as all of these documents are matters of public record. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006). United States District Court For the Northern District of California 1 on her loan payments, defendant initiated non-judicial foreclosure. Complaint at 4:16-19. 2 Plaintiff’s basic theory of the case appears to be that defendant lacked the power to collect loan 3 payments and to foreclose on her home after she defaulted on these payments. According to plaintiff, 4 defendant has no valid security interest in her home because the promissory note entered into with 5 Najarian is itself unenforceable or, in the alternative, because the procedure by which Najarian assigned 6 the deed to defendant was invalid. 7 Plaintiff alleges that the promissory note “was a simple contract, which at minimum, required 8 consideration in the form of said loan to be issued by Najarian – the stated ‘lender.’” Complaint at 5:1-5. 9 Plaintiff alleges that Najarian “never in fact lent Plaintiff or anyone anything and nor did they otherwise 10 fund and/or pay anything to the seller of the home Plaintiff purchased,” and that Najarian’s non- 11 fulfillment of its contract obligations “effectively rendered [the deed of trust] null and void.” Id. at 5:19- 12 22,7:11. According to plaintiff, because the promissory note and deed of trust are unenforceable, 13 defendant is “outside the chain of Plaintiff’s title to her home.” Id. at 7:14. 14 Plaintiff further challenges the involvement of Mortgage Electronic Registration Systems, Inc. 15 (“MERS”) in the assignment of the deed to defendant. The deed states that MERS is “a separate 16 corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS 17 is the Beneficiary under this Security Instrument.” Deed of Trust at 1. The deed further states, 18 19 20 21 22 23 24 25 26 27 28 MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument. Id. at 3. Plaintiff states that MERS “exchanged no consideration for [its] designation” as beneficiary, and alleges that MERS lacked the power to assign the deed to defendant on Najarian’s behalf. Complaint at 8:9-10, 11:2-6. In addition, plaintiff alleges that the assignment “may have been forged vis-a-vis the alleged execution by a ‘Vice President’ of MERS, which Plaintiff has reason to believe, is a false designation.” Id. at 10:27-11:2. Plaintiff further alleges that defendant was aware of the invalid assignment yet “continued to bill for and collect loan payments from Plaintiff from November 2005 through February 2008 and either kept the money or passed it on to an unascertained third party 2 1 or parties.” Id. at 12:15-19. 2 Plaintiff seeks (1) compensatory and punitive damages; (2) a declaration that defendant has no 3 security interest in plaintiff’s property, must “reverse and/or remove any adverse credit notices relative 4 to Plaintiff’s alleged default,” and is “forever barred from pursuing any legal, equitable, or 5 administrative remedy against Plaintiff arising from her alleged default”; and (3) cancellation of the 6 deed of trust, assignment, notice of default, and notice of trustee’s sale. Id. at 16:6-20. Presently before 7 the Court is defendant’s motion to dismiss the complaint for failure to state a claim. 8 United States District Court For the Northern District of California 9 LEGAL STANDARD 10 Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it 11 fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, 12 the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. 13 Corp. v. Twombly, 550 U.S. 544, 570 (2007). This “facial plausibility” standard requires the plaintiff 14 to allege facts that add up to “more than a sheer possibility that a defendant has acted unlawfully.” 15 Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). While courts do not require “heightened fact pleading 16 of specifics,” a plaintiff must allege facts sufficient to “raise a right to relief above the speculative 17 level.” Twombly, 550 U.S. at 544, 555. 18 In deciding whether the plaintiff has stated a claim upon which relief can be granted, the Court 19 must assume that the plaintiff’s allegations are true and must draw all reasonable inferences in the 20 plaintiff’s favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the 21 court is not required to accept as true “allegations that are merely conclusory, unwarranted deductions 22 of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). 23 24 DISCUSSION 25 As an initial matter, the Court must respond to plaintiff’s contentions regarding the applicable 26 pleading standards in this case. Plaintiff suggests that she should not be held to any pleading standard 27 at all simply because she is in the unfortunate position of facing the loss of her home. Plaintiff asserts, 28 In the absence of creative pleadings and/or a liberal judicial interpretation of such 3 1 4 pleadings, most plaintiffs[] trying to save their homes in non-judicial foreclosure states will be left on the courthouse steps and without access to justice . . . . However atypically any cause of action may be ple[d], that should not prevent Ms. Sanchez from being able to litigate the issues she feels entitle her to keep her home, regardless of any defense allegation. After all, this is how the law evolves and if millions of people losing their homes in this country doesn’t call for an evolution in the law . . . , then why have any laws at all? 5 Oppo. at 2-3. This assertion is without merit. The fact that plaintiff is challenging defendant’s right to 6 foreclose on her home does not entitle her to move forward with her case regardless of the adequacy of 7 her complaint. The Court must assess the sufficiency of the complaint using generally-applicable 8 federal pleading standards as set forth in Rule 8 and the Twombly and Iqbal decisions. 2 3 9 United States District Court For the Northern District of California 10 I. Declaratory Relief 11 Plaintiff’s first cause of action seeks a declaration that defendant has no security interest in her 12 property and must therefore “reverse and/or remove any adverse credit notices relative to Plaintiff’s 13 alleged default” and be “forever barred from pursuing any legal, equitable, or administrative remedy 14 against Plaintiff arising from her alleged default.” 15 Under California law, “The fundamental basis of declaratory relief is the existence of an actual, 16 present controversy over a proper subject.” City of Cotati v. Cashman, 52 P.3d 695, 702 (Cal. 2002). 17 In assessing whether a plaintiff has properly pled a cause of action for declaratory relief, courts must 18 examine the substantive allegations in the complaint to determine whether the plaintiff has identified 19 a “legally cognizable theory.” Otay Land Co. v. Royal Indem. Co., 86 Cal. Rptr. 3d 408, 412 (Cal. Ct. 20 App. 2008). “One cannot analyze requested declaratory relief without evaluating the nature of the rights 21 and duties that plaintiff is asserting, which must follow some recognized or cognizable legal theories, 22 that are related to subjects and requests for relief that are properly before the court.” Id. at 413. 23 Accordingly, to determine whether plaintiff has stated a claim for declaratory relief, the Court must 24 examine whether plaintiff has adequately pled any basis for finding that defendant lacks a valid security 25 interest in her property. 26 27 A. 28 Plaintiff’s first contention is that the loan documents were unenforceable at their inception, and California Commercial Code § 3104(a) 4 United States District Court For the Northern District of California 1 therefore cannot have been validly assigned to defendant, because the promissory note was not a 2 negotiable instrument within the meaning of California Commercial Code § 3104(a). Plaintiff 3 emphasizes that under this statutory provision, a “negotiable instrument” is an “unconditional promise 4 or order to pay a fixed amount of money.” Cal. Com. Code § 3104(a) (emphasis added). Plaintiff 5 asserts that the promissory note constituted only a “conditional agreement[] because surely at the time 6 of execution, no such loan had been received by anyone.” Oppo. at 9. 7 Even assuming that the note does not constitute a negotiable instrument within the meaning of 8 the California Commercial Code, plaintiff does not explain in the complaint or in her opposition why 9 this fact has any bearing on the present action. Non-judicial foreclosures are comprehensively governed 10 by California Civil Code §§ 2924-2924k. See Banc of Am. Leasing & Capital, LLC v. 3 Arch Trustee 11 Servs., Inc., 103 Cal. Rptr. 3d 397, 399 (Cal. Ct. App. 2009). Nowhere does this statutory scheme state 12 that, to be subject to non-judicial foreclosure, a mortgage must stem from a negotiable instrument within 13 the meaning of the Commercial Code. The Court was also unable to locate any case law to that effect. 14 Accordingly, plaintiff’s allegations under California Commercial Code § 2924 provide no support for 15 her declaratory judgment claim. 16 17 B. 18 Second, plaintiff alleges that the loan documents are unenforceable due to lack of consideration 19 based on the fact that Najarian allegedly did not fund the loan. Under California contract law, however, 20 “good consideration” is defined as “[a]ny benefit conferred, or agreed to be conferred, upon the 21 promisor, by any other person, to which the promisor is not lawfully entitled.” Cal. Civ. Code § 1605 22 (emphasis added). Plaintiff does not allege that she received no loan funds – only that Najarian did not 23 provide these funds. Indeed, it is apparent from the face of the complaint and from the loan documents 24 that plaintiff received the loan funds and used them to purchase the subject property. Plaintiff’s 25 argument in her opposition brief that the “Court should not consider any mystery funds paid to the seller 26 of the home that Plaintiff purchased to be ‘consideration’” is unavailing. Under California law, 27 plaintiff’s claim for lack of consideration fails as a matter of law. Failure of Consideration 28 5 United States District Court For the Northern District of California 1 C. 2 Plaintiff’s third allegation is that the loan instruments were invalid under California Civil Code 3 §§ 1640 and 1645. Both of these provisions govern the interpretation of contract terms. See Cal. Civ. 4 Code § 1640 (“WRITING, WHEN DISREGARDED. When, through fraud, mistake, or accident, a written 5 contract fails to express the real intention of the parties, such intention is to be regarded, and the 6 erroneous parts of the writing disregarded.”); id. § 1645 (“TECHNICAL WORDS. Technical words are to 7 be interpreted as usually understood by persons in the profession or business to which they relate, unless 8 clearly used in a different sense.”). As an initial matter, plaintiff does not explain how statutes intended 9 to govern a court’s interpretation of a disputed contract may provide her with a right of action. 10 Additionally, plaintiff does not identify which portions of the documents at issue may be affected by 11 these statutory provisions. Accordingly, the Court finds that plaintiff’s passing citations to California 12 Civil Code §§ 1640 and 1645 do not support her claim for declaratory relief. California Civil Code §§ 1640, 1645 13 14 D. 15 Finally, plaintiff alleges that MERS lacked the power to assign the deed of trust to defendant and 16 that the assignment “may” have been the product of forgery. Plaintiff’s allegation that the notarized 17 assignment document “may” have been forged is far too speculative to state a claim. Additionally, 18 plaintiff’s complaint, in its present form, contains no allegations or authority supporting her claim that 19 the assignment in this case was invalid simply because it was effected by MERS. For example, plaintiff 20 nowhere alleges that Najarian did not give MERS the authority to make such an assignment. In 21 addition, plaintiff cites no authority in support of her contention that MERS’ role as a “nominee” did 22 not give MERS the power of assignment. Indeed, plaintiff’s allegation is undermined by the case she 23 cites in support. See Ott v. Home Savings & Loan Ass’n, 265 F.3d 643, 647 (9th Cir. 1958) (“The taking 24 of title by a nominee of a principal or the conveyance of title by a nominee is a familiar device in stock 25 transactions or in the transfer of other interests represented by documents.”).2 Accordingly, the Court Challenges to MERS’ Involvement 26 27 28 2 Plaintiff’s opposition brief refers to many other cases addressing MERS’ role in mortgage transactions. However, these cases have not involved challenges to MERS’ capacity to effect an assignment of a lender’s interest in a mortgage note, and are therefore inapposite to the question of 6 1 concludes that plaintiff’s complaint does not state a claim with respect to the validity of the assignment 2 of the security interest to defendant. Having concluded that plaintiff has not pled any “legally 3 cognizable theory” in support of her declaratory relief claim, see Otay, 86 Cal. Rptr. 3d at 412, the Court 4 GRANTS defendant’s motion to dismiss the declaratory relief cause of action with leave to amend. 5 Plaintiff is advised that in amending her complaint, she must make substantive allegations establishing 6 the presence of an actual controversy as to the parties’ rights and duties under the documents at issue. 7 United States District Court For the Northern District of California 8 II. Cancellation of Loan Instruments 9 Plaintiff’s second cause of action is for cancellation of the deed of trust, assignment, notice of 10 default, and notice of trustee’s sale. Under California Civil Code § 3412, a written instrument may be 11 canceled if “there is a reasonable apprehension that if left outstanding it may cause serious injury to a 12 person against whom it is void or voidable.” Plaintiff’s allegations in support of her contention that the 13 loan instruments are void or voidable are simply the same allegations related to the alleged invalidity 14 of the promissory note and the resulting assignment to defendant. As discussed at length above, none 15 of these allegations is sufficient to state a claim. Additionally, under California law, “in order to obtain 16 rescission of an agreement, . . . a plaintiff must generally restore to the defendant everything of value 17 which the plaintiff has received from defendant under the agreement.” Star Pac. Invs., Inc. v. Oro Hills 18 Ranch, Inc., 176 Cal. Rptr. 546, 551 (Cal. Ct. App. 1981). Plaintiff has not alleged that she has restored 19 to defendant the amount she received through the loan agreement, nor has she alleged that she did not 20 in fact receive anything of value as a result of the loan.3 Accordingly, the Court GRANTS defendant’s 21 motion to dismiss plaintiff’s cancellation cause of action with leave to amend. 22 23 24 25 26 27 whether plaintiff has stated a claim with respect to the validity of the assignment in this case. See In re Mortgage Elec. Registration Sys. (MERS) Litig., 659 F. Supp. 2d 1368 (J.P.M.L. 2009) (establishing multidistrict litigation proceeding consolidating actions alleging conspiracy to conceal from borrowers the true identities of the actual owners of their mortgages); Mortgage Elec. Registration Sys., Inc. v. Neb. Dep’t of Banking & Fin., 704 N.W. 2d 784, 788 (Neb. 2005) (holding that MERS is not a “mortgage lender” under Nebraska law). 3 28 For this reason, among others, plaintiff’s citation to Smiley v. Watson, 138 P. 367 (Cal. Ct. App. 1913) is unavailing. 7 1 2 3 CONCLUSION For the foregoing reasons, the Court GRANTS defendant’s motion to dismiss with leave to amend. (Docket No. 15). Plaintiff’s amended complaint is due no later than March 8, 2010. 4 5 6 IT IS SO ORDERED. Dated: February 22, 2010 SUSAN ILLSTON United States District Judge 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8