Opinion
No. C 09-1599 CW.
August 13, 2010
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS
(Docket Nos. 37 and 39)
Plaintiffs Veronica Newbeck and John J. Ford, III charge Defendants Washington Mutual Bank and Plaza Home Mortgage, Inc. with failing to disclose information in violation of federal and state law. JP Morgan Chase, N.A., as receiver of Washington Mutual's assets and liabilities, and Plaza Home move separately to dismiss Plaintiffs' Amended Complaint. (Docket Nos. 37 and 39.) Plaintiffs oppose the motions. The motions were decided on the papers. Having considered all of the papers submitted by the parties, the Court GRANTS Chase's and Plaza Home's motions.
Although Chase has succeeded to Washington Mutual's assets and liabilities, because Plaintiffs name Washington Mutual as a Defendant, the Court refers to the conduct as that of Washington Mutual, not Chase.
BACKGROUND
Because the Court's Order of January 19, 2010 (Docket No. 32) explains the facts of this case in sufficient detail, Plaintiffs' allegations will not be repeated here in their entirety. In sum, Plaintiffs allege that Plaza Home and Washington Mutual engaged in unlawful conduct in connection with a loan, secured by property at 230 Cordova Street in San Francisco, California. Plaintiffs maintain that Plaza Home and Washington Mutual perpetrated fraud in the loan origination process and that they lacked standing to foreclose on the property.
On January 19, 2010, the Court granted Defendants' first motions to dismiss. (Docket No. 32.) Plaintiffs were granted leave to amend their complaint to cure the deficiencies identified in the Court's Order. Plaintiffs filed an amended complaint on February 2, 2010.
LEGAL STANDARD
A complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). When considering a motion to dismiss under Rule 12(b)(6) for failure to state a claim, dismissal is appropriate only when the complaint does not give the defendant fair notice of a legally cognizable claim and the grounds on which it rests.Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering whether the complaint is sufficient to state a claim, the court will take all material allegations as true and construe them in the light most favorable to the plaintiff. NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). However, this principle is inapplicable to legal conclusions; "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements," are not taken as true. Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1949-50 (2009) (citing Twombly, 550 U.S. at 555).
DISCUSSION
Plaintiffs' opposition does not directly respond to Defendants' motions to dismiss. Plaintiffs merely state, "The arguments have been made. They will not be repeated. . . ." Opp'n at 2. They then refer to the argument, already rejected by the Court, that Plaza Home and Washington Mutual lacked standing to foreclose on the Cordova Street property.
Plaintiffs do not appear to have amended their complaint in any material way. For the reasons stated below, the Court dismisses their claims against Defendants with prejudice.
I. Liability of Chase on Plaintiffs' Claims
For the first time in this litigation, Chase contends that it cannot be held liable on Plaintiffs' claims. Chase asserts that, when it agreed to purchase and assume Washington Mutual's assets and liabilities from the Federal Deposit Insurance Corporation (FDIC), it did not assume any liability for any claims by borrowers related to loans made or held by Washington Mutual. Chase's agreement with the FDIC provides,
Notwithstanding anything to the contrary in this Agreement, any liability associated with borrower claims for payment of or liability to any borrower for monetary relief, or that provide for any other form of relief to any borrower, whether or not such liability is reduced to judgment, liquidated or unliquidated, fixed or contingent, matured or unmatured, disputed or undisputed, legal or equitable, judicial or extra-judicial, secured or unsecured, whether asserted affirmatively or defensively, related in any way to any loan or commitment to lend made by the Failed Bank prior to failure, or to any loan made by a third party in connection with a loan which is or was held by the Failed Bank, or otherwise arising in connection with the Failed Bank's lending or loan purchase activities are specifically not assumed by the Assuming Bank.
Chase's Request for Judicial Notice (RJN), Ex. 7 § 2.5. Based on this provision, courts have held that the FDIC, not Chase, is the real party in interest concerning borrowers' claims arising from loans made or held by Washington Mutual. See, e.g., Yeomalakis v. FDIC, 562 F.3d 56, 60 (1st Cir. 2009); Hilton v. Wash. Mut. Bank, 2009 WL 3485953, at *2-*3 (N.D. Cal.). Plaintiffs did not respond to this argument.
Chase asks the Court to take judicial notice of documents related to the subject loan and its acquisition of the assets and liabilities of Washington Mutual. Plaintiffs do not oppose this request. Because the documents contain facts "capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned," the Court grants Chase's request. Fed.R.Evid. 201(b).
Because Plaintiffs' claims are related to a loan that was held by Washington Mutual, Chase's agreement with the FDIC requires dismissal of Plaintiffs' claims against it. Even if Chase were an appropriate Defendant or Plaintiffs had sued the FDIC, their claims would nevertheless fail for the reasons detailed below.
II. TILA Claims
Plaintiffs assert that Plaza Home and Washington Mutual violated TILA by failing to disclose information regarding the loan's interest rate and the potential for negative amortization. Plaintiffs seek rescission of the loan and statutory damages.
As noted in the Court's prior Order, because Plaintiffs' property has already been sold, they no longer have a right to rescission. 15 U.S.C. § 1635(f). Even if they had such a right, a debtor seeking rescission must "tender the property to the creditor . . . or its reasonable value." Id. § 1635(b). Plaintiffs have not plead that they are able to do so. Thus, Plaintiffs are not entitled to the rescission of their loan.
Plaintiffs' claim for damages is untimely. The subject loan was obtained on December 17, 2006. Under the relevant statute of limitations, Plaintiffs must have filed suit for damages by December 17, 2007. 15 U.S.C. § 1640(e). In their amended complaint, Plaintiffs appear to seek equitable tolling of the limitations period for damages. See Am. Compl. at 30:23-25 (stating that the statute of limitations on their claim for damages begins to "run when the violation occurs, or when the borrower discovers that a violation has occurred. . . .") (emphasis in original). Plaintiffs do not, however, plead facts to show that equitable tolling is warranted. They do not aver that they were prevented from discovering, in the exercise of reasonable diligence, the information necessary to bring these damages claims within the one-year limitations period. See, e.g.,Meyer v. Ameriquest Mortgage Co., 342 F.3d 899, 902 (9th Cir. 2003); Lingad v. Indymac Fed. Bank, 682 F. Supp. 2d 1142, 1147 (E.D. Cal. 2010) (rejecting equitable tolling at pleading stage when "plaintiff fails to allege any facts demonstrating that the TILA violations alleged could not have been discovered by due diligence") (citing Meyer). Indeed, their amended pleading is devoid of any averments concerning the discovery of the alleged non-disclosures. As a result, Plaintiffs are not entitled to equitable tolling.
Accordingly, Plaintiffs' claims for rescission and damages under TILA are dismissed with prejudice. Any right to rescission, assuming one existed, expired upon the sale of Plaintiffs' property. Plaintiffs were required to file a damages claim by December 17, 2007, one year from the date the loan documents were signed.
III. Claim under California Business and Professions Code § 17200
California's Unfair Competition Law (UCL) prohibits any "unlawful, unfair or fraudulent business act or practice." Cal. Bus. Prof. Code § 17200. The UCL incorporates other laws and treats violations of those laws as unlawful business practices independently actionable under state law. Chabner v. United Omaha Life Ins. Co., 225 F.3d 1042, 1048 (9th Cir. 2000). Violation of almost any federal, state or local law may serve as the basis for a UCL claim. Saunders v. Superior Court, 27 Cal. App. 4th 832, 838-39 (1994). In addition, a business practice may be "unfair or fraudulent in violation of the UCL even if the practice does not violate any law." Olszewski v. Scripps Health, 30 Cal. 4th 798, 827 (2003).
Plaintiffs continue to base their UCL claim on Plaza Home's and Washington Mutual's alleged violations of TILA and California Financial Code section 22302 and on their alleged "unfair and fraudulent" business practices. In its January 19 Order, the Court concluded that the Home Owners' Loan Act of 1933 and regulations promulgated by the Office of Thrift Supervision preempt Plaintiffs' UCL claim to the extent that it is based on alleged violations of TILA and "unfair and fraudulent" business practices related to non-disclosure and the terms of the loan. Because Plaintiffs' UCL claim, insofar as it is based on this theory, was already dismissed with prejudice, the Court does not consider it here.
Although Plaintiffs also label Plaza Home's and Washington Mutual's conduct as "unfair," their allegations only refer to fraudulent conduct. See, e.g., Am. Compl. ¶ 106 (stating that Plaza Home and Washington Mutual engaged in marketing in a "false or deceptive manner"); id. ¶ 110 (alleging that Plaza Home failed to disclose information). The Court therefore understands Plaintiffs to plead the fraud prong of the UCL, not the unfair prong. Even if Plaintiffs intended to plead the unfair prong, they have not alleged facts to support such a claim. To allege an unfair practice under the UCL, a plaintiff must plead that "(1) the consumer injury is substantial, (2) the injury is not outweighed by any countervailing benefits to consumers or competition, and (3) the injury is one that consumers themselves could not reasonably have avoided." Morgan v. AT T Wireless Svcs., Inc., 177 Cal. App. 4th 1235, 1254-55 (2009) (citation omitted). Plaintiffs do not make such allegations.
Plaintiffs also base their UCL claim on a violation of California Financial Code section 22302, which prohibits unconscionable loan contracts. The Court previously dismissed this claim, but granted Plaintiffs leave to amend to clarify whether they complained of an inability to review the loan documents or the substantive terms of the loan. Plaintiffs have not amended their vague allegations concerning this theory. Because their complaint lacks factual allegations that show procedural or substantive unconscionability, they cannot maintain their UCL claim on a violation of California Financial Code section 22302.
Accordingly, Plaintiffs' UCL claim is dismissed with prejudice.
IV. Fraud Claim
Plaintiffs allege that Plaza Home's and Washington Mutual's failure to disclose information constituted fraud under California law. To state a claim for fraud, a plaintiff must plead "'(a) misrepresentation; (b) knowledge of falsity (or scienter); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.'" In re Napster, Inc. Copyright Litig., 479 F.3d 1078, 1096 (9th Cir. 2007) (quoting Small v. Fritz Cos., Inc., 30 Cal. 4th 167, 173 (2003)); see generally Cal. Civ. Code §§ 1709- 10. In relevant part, deceit is defined as the "suppression of a fact, by one who is bound to disclose it, or who gives information of other facts which are likely to mislead for want of communication of that fact." Cal. Civ. Code § 1710.
"In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.Proc. 9(b). The allegations must be "specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). Statements of the time, place and nature of the alleged fraudulent activities are sufficient, id. at 735, provided the plaintiff sets forth "what is false or misleading about a statement, and why it is false." In re GlenFed, Inc., Secs. Litig., 42 F.3d 1541, 1548 (9th Cir. 1994). Scienter may be averred generally, simply by saying that it existed. Id. at 1547;see Fed.R.Civ.Proc. 9(b) ("Malice, intent, knowledge, and other condition of mind of a person may be averred generally."). Allegations of fraud based on information and belief usually do not satisfy the particularity requirements of Rule 9(b); however, as to matters peculiarly within the opposing party's knowledge, allegations based on information and belief may satisfy Rule 9(b) if they also state the facts upon which the belief is founded.Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987).
In its January 19 Order, the Court dismissed with leave to amend Plaintiffs' fraud claim because they failed to satisfy the heightened pleading requirement of Rule 9(b). Plaintiffs do not appear to have amended their allegations concerning fraud. They still do not identify "'the who, what, when, where, and how'" of the alleged fraud. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quoting Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)). Nor do they identify any of Plaza Home's and Washington Mutual's employees who allegedly perpetrated the fraud. And, as noted above, they do not even allege Washington Mutual's role in the origination of the loan.
As the Court stated in its prior Order, Plaintiffs cannot base their fraud claim solely on language in their loan documents and conclusory allegations that these statements were deceptive. On their face, these statements disclose the loan's terms. For instance, the documents state the potential for negative amortization. Selden Decl., Exs. D-E at 1. Plaintiffs have not plead how a fraud was perpetrated, despite the language contained in the disclosure documents.
Plaintiffs' fraud claim is therefore dismissed with prejudice. Plaintiffs have not plead fraud with particularity, nor have they alleged Washington Mutual's role in the alleged fraud.
V. Request to "Set Aside Foreclosure Sale"
Plaintiffs reassert their request that the Court set aside Washington Mutual's foreclosure sale of their property. As noted above, they repeat their argument concerning Washington Mutual's standing to foreclose on the property, which the Court rejected in its January 19 Order.
A plaintiff seeking to set aside a foreclosure sale must first allege tender of the amount of the secured indebtedness. Abdallah v. United Sav. Bank, 43 Cal. App. 4th 1101, 1109 (1996) (citingFPCI RE-HAB 01 v. E G Investments, Ltd., 207 Cal. App. 3d 1018, 1021-22 (1989)); Smith v. Wachovia, 2009 WL 1948829, at *3 (N.D. Cal.). Without pleading tender or the ability to offer tender, a plaintiff cannot state a cause of action to set aside a foreclosure sale. Karlsen v. Am. Sav. Loan Ass'n, 15 Cal. App. 3d 112, 117 (1971) (citing Copsey v. Sacramento Bank, 133 Cal. 659, 662 (1901)); Smith, 2009 WL 1948829, at *3 (citing Karlsen).
Plaintiffs have not alleged facts that warrant setting aside the foreclosure sale. Even if they had, Plaintiffs do not allege tender or the ability to offer tender. Plaintiffs' claim to set aside the foreclosure sale is dismissed with prejudice.
VI. Claim for Declaratory Relief
The Declaratory Judgment Act (DJA) permits a federal court to "declare the rights and other legal relations" of parties to "a case of actual controversy." 28 U.S.C. § 2201; see Wickland Oil Terminals v. Asarco, Inc., 792 F.2d 887, 893 (9th Cir. 1986). The "actual controversy" requirement of the Declaratory Judgment Act is the same as the "case or controversy" requirement of Article III of the United States Constitution. Am. States Ins. Co. v. Kearns, 15 F.3d 142, 143 (9th Cir. 1993).
Plaintiffs' declaratory judgment claim fails because they have not alleged facts showing that there is an actual case or controversy. The foreclosure sale has already been completed, and this operates as a final adjudication of the rights among the parties. Accordingly, the Court dismisses Plaintiffs' declaratory judgment claim with prejudice.
VII. Mr. Ford's Standing in this Action
Plaza Home renews its argument that, because Mr. Ford was not a party to the mortgage, he lacks standing to bring the claims asserted in this action. Plaintiffs' amended complaint pleads that Mr. Ford has standing to bring the asserted claims as "a co-owner in the property and a signatory to the deed of trust." Am. Compl. ¶ 15. Further, some loan documents bear Mr. Ford's signature and the deed of trust names Mr. Ford as a "borrower."See, e.g., RJN, Ex. 1. However, Mr. Ford did not sign the amended complaint, so it is not clear that he intends to join this lawsuit.
Although the amended complaint filed in the public record does not contain Ms. Newbeck's signature, it appears on the copy lodged with the Court.
The Court need not resolve this issue because, as noted above, all claims asserted in the amended complaint are dismissed with prejudice.
CONCLUSION
For the foregoing reasons, the Court GRANTS Defendants' Motions to Dismiss. (Docket Nos. 37 and 39.) Because Plaintiffs had an opportunity to amend their complaint and did not cure the defects identified by the Court, their claims are dismissed with prejudice. Hearns v. San Bernardino Police Dep't, 530 F.3d 1124, 1130-31 (9th Cir. 2008). The Clerk shall enter judgment and close the file. All parties shall bear their own costs.
IT IS SO ORDERED.