Opinion
NO. CIV. 2:09-cv-01338-FCD-KJM.
November 10, 2009
MEMORANDUM AND ORDER
This matter is before the court on the motions of Litton Loan Servicing ("Litton"), Summit Funding Inc. ("Summit"), Tod Scrima ("Scrima"), and The Wolf Firm ("Wolf") to dismiss plaintiffs' First Amended Complaint pursuant to Federal Rule of Civil Procedure ("FRCP") 12(b)(6). Litton and Wolf also move to strike portions of the First Amendment Complaint pursuant to FRCP 12(f). Summit and Scrima alternatively make a motion for a more definite statement pursuant to FRCP 12(e). Plaintiffs Guillermo Paz and Pati Paz (collectively, "plaintiffs") oppose the motions. For the reasons set forth below, defendants' motions are GRANTED in part and DENIED in part.
Because the court dismisses all claims against Litton and Wolf, the court does not address the merits of their motion to strike.
Because oral argument will not be of material assistance, the court orders this matter submitted on the briefs. E.D. Cal. L.R. 78-230(h).
BACKGROUND
Plaintiffs brought this action against Litton, Ownit Mortgage Solutions, Inc. ("Ownit"), Wolf, Mortgage Electronic Registration Systems, Inc. ("MERS"), Summit, and Scrima (collectively, "defendants") for conduct arising out of a loan and subsequent foreclosure activity. (Pls.' First Amended Complaint ("Compl."), filed June 25, 2009, ¶ 18.)Plaintiffs allege that they are natives of Mexico and that they speak primarily Spanish. (Id. ¶ 26.) They allege that their ability to speak and read English is limited and they have almost no understanding of technical English. (Id.)
Plaintiffs allege that in late December of 2005 and in early January of 2006, "Ophilia," who held herself out as a loan officer employed by Summit, solicited plaintiffs to finance their residence. (Id. ¶¶ 14, 24.) Plaintiffs also allege that Scrima is the broker of record for Summit. (Id. ¶ 15.)
During the loan application process, plaintiffs allege that "Ophilia" told plaintiffs that she could get them the "best deal" and the "best interest" rates in the market. (Id. ¶ 25.) "Ophilia" also allegedly told plaintiffs that the mortgage loan at issue was the only loan that they could qualify for and did not disclose any other options to them. (Id.) Plaintiffs claim that they repeatedly asked for a single fixed-rate loan, but that "Ophilia" and Scrima allegedly denied their request, advising them instead that the only loan available to plaintiffs was an adjustable rate loan. (Id. ¶ 29.)
Plaintiffs allege that "Ophilia" did not disclose to plaintiffs that she was actually selling them two loans, which were an adjustable-rate first mortgage and an interest-only second mortgage with a balloon payment. (Id. ¶ 29.) Plaintiffs further allege that "Ophilia" advised plaintiffs that she would refinance the loan into an affordable fixed rate loan after one year. (Id. ¶ 30.) Plaintiffs allege that "Ophilia" represented to them that the interest rate would be approximately 6%, but that the actual interest rate for each loan was approximately 10%. (Id. ¶ 31.)
Prior to closing, plaintiffs allege that they were not allowed to review any documents. (Id. ¶ 32.) At the closing, plaintiffs allege that no documents were translated into Spanish and that no translator was present. (Id.) Plaintiffs allege that they had a few minutes to sign the documents and that they did not receive the copies of a proper notice of cancellation or the disclosures required by TILA. (Id. ¶¶ 32, 49.) Plaintiffs completed the loan on the property on or about February 24, 2006. (Id. ¶ 34.) The terms of the loan were memorialized in a promissory note and secured by a Deed of Trust ("Deed") on the property. (Id.) The Deed identified Ownit as the lender, and Fidelity and Southland Title as trustees for the first and second loan respectively. (Id.)
Plaintiff alleges that a Qualified Written Request ("QWR"), which included a demand to rescind the loan pursuant to TILA, was mailed to Litton on March 31, 2009. (Id. ¶ 36.) Plaintiff alleges that Litton has not responded to the QWR. (Id.)
On April 14, 2009, Wolf filed a Notice of Default ("Notice") in Sacramento County. (Id. ¶ 37.) Plaintiffs allege that Wolf is not the original trustee and that plaintiffs have not been served with any documents informing them of Wolf's appointment as a substitute trustee or that Wolf was acting for a beneficiary under a Deed of Trust. (Id. ¶ 38.)
In their First Amended Complaint, plaintiffs assert claims for 1) violation of the Truth In Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq.; 2) violation of the Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), California Civil Code §§ 1788 et seq., 3) negligence, 4) violation of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. §§ 2601 et seq., 5) breach of fiduciary duty, 6) fraud, 7) violation of California Business and Professions Code § 17200; 8) breach of contract, 9) breach of implied covenant of good faith and fair dealing, and 10) wrongful foreclosure. (Compl.)
STANDARDS
A. Motion To Dismiss For Failure To State A Cognizable Claim
Under FRCP 8(a), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). Under notice pleading in federal court, the complaint must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). "This simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002).
On a motion to dismiss, the factual allegations of the complaint must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322 (1972). The court is bound to give plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n. 6 (1963). A plaintiff need not allege "'specific facts' beyond those necessary to state his claim and the grounds showing entitlement to relief. Twombley, 550 U.S. at 570. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949.
Nevertheless, the court "need not assume the truth of legal conclusions cast in the form of factual allegations." United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n. 2 (9th Cir. 1986). While Rule 8(a) does not require detailed factual allegations, "it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 129 S. Ct. at 1949. A pleading is insufficient if it offers mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555; Iqbal, 129 S. Ct. at 1950 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."). Moreover, it is inappropriate to assume that the plaintiff "can prove facts which it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged."Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).
Ultimately, the court may not dismiss a complaint in which the plaintiff has alleged "enough facts to state a claim to relief that is plausible on its face." Iqbal, 129 S. Ct. at 1949 (citingBell Atlantic Corp. v. Twombly, 550 U.S. 554, 570 (2007)). Only where a plaintiff has failed to "nudge [his or her] claims across the line from conceivable to plausible," is the complaint properly dismissed. Id. at 1952. While the plausibility requirement is not akin to a probability requirement, it demands more than "a sheer possibility that a defendant has acted unlawfully." Id. at 1949. This plausibility inquiry is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950.
B. Motion For A More Definite Statement
A motion for a more definite statement should not be granted unless a pleading is "so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading." Fed.R.Civ.P. 12(e). This liberal standard is consistent with FRCP 8(a)(2) which allows pleading that contains a "short and plain statement of the claim." See Hutson v. Am. Home Mortg. Servicing, 2009 U.S. Dist. LEXIS 96764, at *9 (N.D. Cal. Oct. 16, 2009) ("A motion for a more definite statement attacks intelligibility, not simply lack of detail."). The Federal Rules of Civil Procedure anticipate that the parties will familiarize themselves with the claims and ultimate facts through the discovery process. See Famolare, Inc. v. Edison Brothers Stores, Inc., 525 F. Supp. 940, 949 (E.D. Cal. 1981). Indeed, "where the information sought by the moving party is available and/or properly sought through discovery, the motion should be denied."Id. However, a plaintiff must not be permitted to use "shotgun" pleading tactics, such as providing inadequate factual bases for his claims, to thwart the defendant's ability to seek dismissal of the claims against him as early in the litigation as possible.See Marx v. Gumbinner, 855 F.2d 783, 792 (11th Cir. 1988).
ANALYSIS
A. Defendants' And Plaintiffs' Exhibits
In ruling upon a motion to dismiss, the court may also consider matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. See Mir v. Little Co. of Mary Hospital, 844 F.2d 646, 649 (9th Cir. 1988); Isuzu Motors Ltd. v. Consumers Union of United States, Inc., 12 F. Supp.2d 1035, 1042 (C.D. Cal. 1998). "Even if a document is not attached to a complaint, it may be incorporated by reference into a complaint if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim." United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). "The defendant may offer such a document, and the district court may treat such a document as part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6)." Id. The policy concern underlying the rule is to prevent plaintiffs "from surviving a Rule 12(b)(6) motion by deliberately omitting references to documents upon which their claims are based." Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998).
Plaintiffs' complaint alleges several causes of action that are premised on defendants' failure to provide certain required disclosures during and after the loan transaction. Accordingly, as these documents form the bases of the relevant causes of action, the court considers them and assumes that the contents are true for the purpose of a motion to dismiss.
B. TILA Violation
Plaintiffs' First claim alleges that Litton, together with Ownit, violated TILA by failing to provide the required disclosures of the loan terms and the notice of right to cancel prior to the time of closing. (Compl. ¶¶ 57, 58.) Through the complaint, plaintiffs also give notice and demand rescission. (Id. ¶ 60.) Defendant Litton moves to dismiss the claim on the ground that plaintiffs have stated no facts that implicate Litton in the loan transaction. (Litton Mem. Mot. Dismiss ("Litton's Mem."), filed July 15, 2009, at 3.) Alternatively, Litton also argues that plaintiffs' TILA claim is barred by the statute of limitations. (Id. at 4.)
A creditor violates TILA when it fails to provide the required disclosures pursuant to 15 U.S.C. § 1631, and to clearly and conspicuously disclose information relating to the "annual percentage rate" and the "finance charge" pursuant to 15 U.S.C. § 1632. To recover damages arising from alleged TILA violations, a plaintiff must file an action to recover damages "within one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e). However, under Section 1641, loan servicers are not liable under TILA as assignees of the loan unless the servicer is or was the owner of the obligation. See Feliciano v. Wash. Mut. Bank, FA, 2009 U.S. Dist. LEXIS 71292, at *7 (E.D. Cal. Aug. 3, 2009); Pelayo v. Home Capital Funding, 2009 U.S. Dist. LEXIS 44453, at **12-13 (S.D. Cal. May 22, 2009); de Los Santos v. World Capital Fin., 2009 U.S. Dist. LEXIS 22913, at **7-8 (C.D. Cal. Mar. 9, 2009); Marks v. Ocwen Loan Servicing, 2008 U.S. Dist. LEXIS 12175, at **4-5 (N.D. Cal. Feb. 6, 2008).
In this case, plaintiffs allege that they consummated the loan on or about February 24, 2006. (Compl. ¶ 34.) Plaintiffs' complaint specifically identify only Summit, Scrima, and "Ophilia" as the parties participating in the loan transaction and name Ownit as the lender. (Id. ¶¶ 31-34.) Plaintiffs allege no facts showing how Litton participated in the loan transaction or that Litton had ever owned the loan at issue. Instead, plaintiffs allege that defendants, including Litton, have never owned any interest in the loan at issue. (Id. ¶ 21.) Moreover, plaintiffs fail to respond to Litton's argument that Litton was not involved in the loan transaction. As such, plaintiffs' TILA claim fails to allege facts supporting the theory that Litton, as a loan servicer, may be liable for a TILA violation.
Accordingly, Litton's motion to dismiss plaintiffs' First claim is GRANTED.
C. RFDCPA Violation
Plaintiffs' Second claim alleges that Litton and Wolf, together with Ownit and MERS, violated the RFDCPA. Plaintiffs' claim is premised on "fraud at the inception of the loan," resulting in defendants' use of "unfair and unconscionable means . . . to collect a debt against a void security interest." (Pls.' Opp'n Litton's Mot. Dismiss ("Pls.' Opp'n Litton"), filed Sept. 1, 2009, at 17; Pls.' Amended Opp'n Wolf's Mot. Dismiss ("Pls.' Opp'n Wolf"), filed Oct. 2, 2009, at 10-11.)
Litton moves to dismiss the claim by arguing that Litton is not a debt collector and that a foreclosure does not constitute debt collection under the Act. (Litton's Mem. at 7.) Wolf raises the same arguments in its motion to dismiss. (Wolf's Mem. Mot. Dismiss ("Wolf's Mem."), filed Sept. 16, 2009, at 7.) Litton also moves to dismiss the claim because plaintiffs do not allege any harassing or abusive tactics. (Litton's Mem. at 8.)
The purpose of the RFDCPA is "to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts." Cal. Civ. Code § 1788.1(b). A debt collector violates the act when it engages in harassment, threats, the use of profane language, false simulation of the judicial process, or when it cloaks its true nature as a licensed collection agency in an effort to collect a debt. See Cal. Civ. Code §§ 1788.10-88.18; see also Hernandez v. Cal. Reconveyance Co., 2009 U.S. Dist. LEXIS 13936, at *13 (E.D. Cal. Feb. 23, 2009) (holding that a RFDCPA claim failed because the complaint lacked allegations of harassment or abuse, false or misleading representations of the debt collector's identity, or unfair practices during the process of collecting debt). However, merely alleging that defendants foreclosed on a deed of trust does not implicate the RFDCPA. See e.g. Benham v. Aurora Loan Servs., 2009 U.S. Dist. LEXIS 78384, at *6 (N.D. Cal. Sept. 1, 2009); Ricon v. Recontrust Co., 2009 U.S. Dist. LEXIS 67807, at *9 (S.D. Cal. Aug. 4, 2009); Hepler v. Wash. Mut. Bank, FA, 2009 U.S. Dist. LEXIS 33883, at *11 (C.D. Cal. April 17, 2009). Furthermore, trustees engaged in the process of nonjudicial foreclosure have immunity from liability under California Civil Code § 2924(b). See Cal. Civ. Code § 2924(b) ("[T]he trustee shall incur no liability for any good faith error resulting from reliance on information provided in good faith by the beneficiary regarding the nature and the amount of the default under the secured obligation, deed of trust, or mortgage."); see also Razawi v. FDIC, 2009 U.S. Dist. LEXIS 89512, at *10 (E.D. Cal. Sept. 8, 2009); Nool v. Homeg Servicing, 2009 U.S. Dist. LEXIS 80640, at *11 (E.D. Cal. Sept. 4, 2009).
Plaintiffs' complaint fails to allege any facts to support how Litton and Wolf violated the RFDCPA. Plaintiffs' allegations generally are premised on the act of foreclosure which does not, by itself, constitute debt collection under the RFDCPA. Plaintiffs also do not allege threats, harassment, or profane language that occurred after the loan was made. Furthermore, plaintiffs make general allegations against multiple defendants; the allegations in the complaint neither point to any provision of the RFDCPA that Litton or Wolf purportedly violated nor allege facts that allow the court to infer how Litton or Wolf may have violated those provisions. In short, plaintiffs' complaint fails to state facts that give rise to a fair inference that Litton and Wolf violated the RFDCPA. See Larkin v. Select Portfolio Servicing, 2009 U.S. Dist. LEXIS 97656, at *8 (E.D. Cal. Oct. 21, 2009) (holding that allegations that the defendant used "unfair or unconscionable means to collect a debt" are merely conclusions of law when the plaintiff did not allege any facts concerning the frequency, timing, or methods of the debt collection practices).
Plaintiffs cite McGrew v. Countrywide Home Loans, Inc., 628 F. Supp. 2d 1237 (S.D. Cal. 2009), to support their assertion that some activities carried out pursuant to a foreclosure may constitute violations of the RFDCPA. McGrew is distinguishable from this case because, in McGrew, the plaintiffs alleged that the defendants made rude and harassing phone calls to them at home and at their place of employment and persisted in communicating with the plaintiffs even after the plaintiffs directed the defendants to contact their retained counsel.McGrew, 628 F. Supp. 2d at 1242-43.
Plaintiffs attempt to salvage the RFDCPA claim by later alleging in their opposition that defendants sent "numerous letters requesting payment of the loan." (Pls.' Opp'n Litton at 17.) However, merely sending numerous letters does not constitute an actionable offense under the RFDCPA. See Cal. Civ. Code §§ 1788.10-88.18.
Accordingly, the motions of Litton and Wolf to dismiss the Second claim are GRANTED.
The court notes that Litton identifies itself as a debt collector in its correspondence with plaintiffs. (Pls.' Request For Judicial Notice Opp'n Litton ("Pls.' RJN Litton") Ex. 1.) However, as the court dismisses the claim on other grounds, the court does not address Litton and Wolf's arguments that they are not debt collectors as defined by the RFDCPA. The court also does not address the argument that the requirements under the federal Fair Debt Collection Practices Act are incorporated into the RFDCPA.
D. Negligence And Breach Of Fiduciary Duty
The Third claim asserts that defendants breached a duty of care by directing plaintiffs to a loan that they would not otherwise have qualified for under industry standards. (Compl. ¶ 71.) The Fifth claim asserts that defendants Summit and Scrima, together with Ownit, also breached fiduciary duties for the same reason. (Id. ¶ 90.)
"The question of the existence of a legal duty of care . . . presents a question of law which is to be determined by the courts alone." First Interstate Bank of Ariz., N.A. v. Murphy, Weir Butler, 210 F.3d 983, 987 (9th Cir. 2000). "Absent the existence of duty . . . there can be no breach and no negligence." Nichols v. Keller, 15 Cal. App. 4th 1672, 1683 (1993).
1. Negligence Claim Against Litton
"[A]s a general rule, a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money." Nymark v. Heart Fed. Sav. Loan Ass'n., 231 Cal. App. 3d 1089, 1096 (1991). Similarly, a loan servicer does not have a duty to a borrower when its involvement does not exceed the scope of its role as a mere loan servicing company.See Watts v. Decision One Mortgage Co., LLC, 2009 U.S. Dist. LEXIS 59694, at *7 (S.D. Cal. July 13, 2009); Hendrickson v. Popular Mortgage Servicing, Inc., 2009 U.S. Dist. LEXIS 43401, at *20 (N.D. Cal. May 21, 2009); Cataulin v. Wash. Mut. Bank, FSB, 2009 U.S. Dist. LEXIS 19667, at *14 (S.D. Cal. Mar. 9, 2009).
Plaintiffs cite no authority to establish that a duty runs from Litton, as a loan servicer, to plaintiffs. Plaintiffs only allege a general duty to avoid harm. Other than general allegations against all the defendants in the complaint, plaintiffs do not allege facts specific to Litton that explain how Litton exceeded its role as a loan servicer. Such pleading does not sufficiently set forth a claim for negligence.
Accordingly, Litton's motion to dismiss the Third claim is GRANTED with leave to amend.
2. Negligence And Breach Of Fiduciary Claims Against Summit And Scrima
A mortgage broker owes a fiduciary duty to their client. See Cal. Civ. Code § 2079.24; Zimmer v. Nawabi, 566 F. Supp. 2d 1025 (E.D. Cal. 2008). A mortgage broker acts in a fiduciary capacity that "not only imposes upon him the duty of acting in the highest good faith toward his principal but also precludes the agent from obtaining any advantage over the principal in any transaction had by virtue of his agency." Wyatt v. Union Mortgage Co., 24 Cal. 3d 773, 782 (1979) (citing Batson v. Strehlow, 68 Cal. 2d 662, 674-75 (1968)). This duty obligates brokers to "make a full and accurate disclosure of the terms of a loan to borrowers and to act always in the utmost good faith toward their principals."Wyatt, 24 Cal. 3d at 782 (citing Rattray v. Scudder, 28 Cal. 2d 214, 223 (1946)). Accordingly, a broker is liable to his principal for secret profits. Roberts v. Lomanto, 112 Cal. App. 4th 1553, 1570 (2003).
Plaintiffs allege that defendants Summit and Scrima breached their respective duties as loan brokers. (Compl. ¶ 70.) Specifically, plaintiffs allege that "Ophilia," as Summit's employee, should have directed them to a loan that they could have afforded. (Id. ¶¶ 24, 28.) Plaintiffs also allege that "Ophilia" failed to make accurate disclosures of the loan terms in order to induce plaintiffs into accepting the loan at issue. (Id. ¶¶ 29-31.) Furthermore, plaintiffs allege that no one provided a Spanish translator during the loan transaction even though plaintiffs were not proficient in English. (Id. ¶¶ 26, 32.) Plaintiffs also allege that Scrima denied plaintiffs' repeated requests for a fixed rate loan. (Id. ¶ 29.) Finally, plaintiffs allege that defendants directed plaintiffs to the loan at issue so that defendants could benefit from enhanced commissions and fees. (Id. ¶ 28.)
Accepting the allegations of the complaint as true, Summit and Scrima acted as plaintiffs' mortgage brokers and, as such, owed plaintiffs a fiduciary duty. Plaintiffs also allege conduct that may amount to a breach of that duty.
Accordingly, the motion of Summit and Scrima to dismiss plaintiffs' Third and Fifth claims is DENIED.
3. Negligence Claim Against Wolf
Upon default, the trustee of a deed of trust has only the duty "to undertake the steps necessary to foreclose the deed of trust." Vournas v. Fidelity Nat. Tit. Ins. Co., 73 Cal. App. 4th 668, 677 (1999). The trustee's role in preparing for and conducting a nonjudicial foreclosure sale is defined in California Civil Code §§ 2924 et seq. Pro Value Properties, Inc. v. Quality Loan Serv. Corp., 170 Cal. App. 4th 579, 583 (2009). "The scope and nature of the trustee's duties are exclusively defined by the deed of trust and the governing statutes. No other common law duties exist." Id.; see also I. E. Associates v. Safeco Title Ins. Co., 39 Cal. 3d 281, 288 (1985) ("[T]here is no authority for the proposition that a trustee under a deed of trust owes any duties with respect to exercise of the power of sale beyond those specified in the deed and the statutes.").
In the complaint, plaintiffs make general allegations against all defendants and do not allege facts specific to Wolf. Indeed, plaintiffs' allegations are only that "defendants failed to maintain the original mortgage note, failed to properly create original documents, and failed to make the required disclosures." (Compl. ¶ 72.) Plaintiffs do not identify a provision in the statutes or deed of trust that Wolf allegedly violated. Therefore, plaintiffs have failed to meet their pleading burden.See Razawi, 2009 U.S. Dist. LEXIS 89512, at *13 (granting a motion to dismiss a negligence claim against a trustee because the plaintiffs did not identify a provision in the statutes or deed of trust that the trustee allegedly violated).
In their opposition, plaintiffs appear to assert that Wolf is a third-party stranger to the mortgage agreement and has no legal right to conduct a nonjudicial foreclosure. (Pls.' Opp'n Wolf at 5-6, 12.) Under this theory, Wolf breached the duties imposed by law on trustees by assuming the role of trustee after being improperly substituted by MERS. However, plaintiffs cite no authority to explain how this substitution was illegal or how Wolf's assumption of duties as a trustee is a breach of duty. Plaintiffs must plead "more than labels and conclusions."Twombly, 550 U.S. at 555. "[T]he tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Iqbal, 129 S. Ct. at 1949. Therefore, the court does not address plaintiffs' arguments on this matter.
Accordingly, Wolf's motion to dismiss the Third claim is GRANTED.
E. RESPA Violation
Plaintiffs' Fourth claim alleges that Litton, Summit, and Scrima, together with Ownit, violated 12 U.S.C. § 2605 by failing to provide a written explanation in response to plaintiffs' QWR. (Compl. ¶ 80.) Plaintiffs also generally allege that defendants failed to comply with RESPA's disclosure requirements at the time of closing and that defendants engaged in a pattern or practice of non-compliance of 12 U.S.C. § 2605. (Id. ¶¶ 79, 81.)
RESPA allows a plaintiff to file actions for violations of 12 U.S.C. §§ 2605, 2607 and 2608. See 12 U.S.C. § 2614. Sections 2605 and 2607 refer to a lender's obligation to provide disclosures. Specifically, Section 2605 requires a loan servicer to provide disclosures relating to the assignment, sale, or transfer of loan servicing to a potential or actual borrower in two instances: (1) at the time of the loan application, and (2) at the time of transfer. 12 U.S.C. § 2605. The loan servicer also has a duty to respond to a borrower's inquiry or "qualified written request." 12 U.S.C. § 2605(e). A qualified written request is a written correspondence that enables the servicer to identify the name and account of the borrower. 12 U.S.C. § 2605(e)(1). It also either includes a statement describing why the borrower believes that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower. Id. The loan servicer then has to respond by making appropriate corrections to the borrower's account if necessary and, after conducting an investigation, providing the borrower with a written clarification or explanation. 12 U.S.C. § 2605(e)(2). The statute of limitations to bring an action for a Section 2605 violation is three years. 12 U.S.C. § 2614.
1. RESPA Violation Claim Against Litton
Plaintiffs allege that a QWR was sent to Litton on March 31, 2009 and that Litton has yet to respond. (Compl. ¶ 36.) Litton argues that plaintiffs' purported QWR does not meet the description in Section 2605(e)(1) because "[p]laintiffs do not allege the correspondence had inquiries about the servicing of the loan, only that 'it included a demand to rescind the loan under the provisions of TILA.'" (Litton's Mem. at 10.)
As plaintiffs allege no facts showing Litton's participation in the loan transaction at the time of the loan closing, the court only addresses whether plaintiffs have pled a cognizable RESPA violation claim premised on Litton's alleged failure to respond to plaintiff's QWR.
Pursuant to § 2605(i), "'servicing' means receiving any scheduled periodic payments of principal and interest and such other payments with respect to the amounts received from the borrower." According to the allegations in the complaint, the March 31, 2009 letter "simply disputed the validity of the loan and not its servicing." Consumer Solutions REO, LLC v. Hillery, 2009 U.S. Dist. LEXIS 76244, at *28 (N.D. Cal. Aug. 26, 2009);see MorEquity, Inc. v. Naeem, 118 F. Supp. 2d 885, 900-01 (N.D. Ill. 2000) (dismissing claim pursuant to § 2605(e) where it alleged that the QWR implicated a "a forged deed, and irregularities with respect to the recording of the two loans, but [made] no claim with respect to improper servicing"). As such, plaintiffs have failed to set forth facts alleging that they sent a valid and actionable QWR to Litton.
Accordingly, Litton's motion to dismiss the Fourth claim is GRANTED.
2. RESPA Violation Claim Against Summit And Scrima
Plaintiff alleges that Summit and Scrima violated RESPA at the time of closing because Summit and Scrima did not comply with the disclosure requirements. (Compl. ¶ 79.) However, the loan documents show that plaintiff Guillermo Paz acknowledged on February 8, 2006 that he received the disclosure required by RESPA. (Summit's Scrima's Request For Judicial Notice ("Summit Scrima RJN") Ex. 3.) As plaintiffs received the disclosure that forms the basis for this claim against Summit and Scrima, plaintiffs cannot allege contradictory facts that Summit and Scrima failed to provide the disclosures during the loan transaction. Accordingly, the motion of Summit and Scrima to dismiss the Fourth claim is GRANTED.
F. Fraud
Plaintiffs' Sixth claim alleges that defendants' conduct during and after the loan transaction constitutes fraud. (Compl. ¶¶ 85-91.)
"Under California law, 'the indispensable elements of a fraud claim include a false representation, knowledge of its falsity, intent to defraud, justifiable reliance, and damages.'" Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1105 (quoting Hackethal v. Nat'l Cas. Co., 189 Cal. App. 3d 1102, 1111 (1987)). To bring a fraud claim, the plaintiff must satisfy FRCP 9(b)'s heightened pleading requirement. This means that plaintiff "must state with particularity the circumstances constituting fraud." Fed.R.Civ.P. 9(b). In other words, the plaintiff must include "the who, what, when, where, and how" of the fraud. Vess, 317 F.3d at 1106 (citations omitted). "The plaintiff must set forth what is false or misleading about a statement, and why it is false." Decker v. Glenfed, Inc., 42 F.3d 1541, 1548 (9th Cir. 1994). Furthermore, "Rule 9(b) does not allow a complaint to merely lump multiple defendants together but require[s] plaintiffs to differentiate their allegations when suing more than one defendant . . . and inform each defendant separately of the allegations surrounding his alleged participation in the fraud." Swartz v. KPMG LLP, 476 F.3d 756, 765-66 (9th Cir. 2007). The purpose of FRCP 9(b) is to ensure that defendants accused of the conduct specified have adequate notice of what they are alleged to have done, so that they may defend against the accusations. Concha v. London, 62 F.3d 1493, 1502 (9th Cir. 1995).
When asserting a fraud claim against a corporation, "the plaintiff's burden . . . is even greater. . . . The plaintiff must 'allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.'" Lazar v. Superior Court, 12 Cal. 4th 631, 645 (1996) (quoting Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App. 4th 153, 157 (1991)); see also e.g. Mohammad Akhavein v. Argent Mortgage Co., 2009 U.S. Dist. LEXIS 61796, at *10 (N.D. Cal. July 17, 2009); Spencer v. DHI Mortgage Co., 2009 U.S. Dist. LEXIS 55191, at *18 (E.D. Cal. June 30, 2009).
1. Fraud Claim Against Litton And Wolf
Plaintiffs fail to allege any facts to support a fraud claim against Litton and Wolf. Plaintiffs simply recite the elements of a fraud claim as general allegations against all the named defendants. Plaintiffs neither substantiate the fraud claim with any facts nor even attempt to connect factual allegations specific to each defendant to the recited elements. Without any facts in the complaint specifying the false misrepresentations that Litton or Wolf made or identifying the name of a Litton or Wolf representative who allegedly made the fraudulent representations, plaintiffs' fraud claim against Litton or Wolf cannot survive a motion to dismiss.
Accordingly, the motion of Litton and Wolf to dismiss the Sixth claim is GRANTED.
2. Fraud Claim Against Summit
Summit argues that this claim is barred by the statute of limitations, which ran shortly after February 24, 2009. Summit contends that plaintiffs should have discovered the actual interest rate when the first payment was due, soon after the loan closed on February 24, 2006. In response, plaintiffs argue that equitable tolling should apply because the "facts surrounding this loan transaction [were] purposefully hidden to prevent plaintiffs from discovering the true nature of the documents." (Pls.' Opp'n Summit Scrima Mot. Dismiss ("Pls.' Opp'n Summit Scrima"), filed Sept. 1, 2009, at 21.)
Under California law, the statute of limitations for a fraud claim is three years. Cal. Civ. Proc. § 338. The cause of action accrues when the aggrieved party discovers the facts constituting the fraud. Id. "A claim may be dismissed under Rule 12(b)(6) on the ground that it is barred by the applicable statute of limitations only when 'the running of the statute is apparent on the face of the complaint.'" Saher v. Norton Simon Museum of Art at Pasadena, 2009 U.S. App. LEXIS 18604, at *37 (9th Cir. Aug. 19, 2009) (quoting Huynh v. Chase Manhattan Bank, 465 F.3d 992, 997 (9th Cir. 2006)). The applicability of equitable tolling "is not generally amenable to resolution on a FRCP 12(b)(6) motion."Supermail Cargo, Inc. v. U.S., 68 F.3d 1204, 1206 (9th Cir. 1995). However, the plaintiff must at least plead facts supporting a basis for equitable tolling. See e.g. Pagtalunan v. Reunion Mortgage, Inc., 2009 U.S. Dist. LEXIS 89994 (N.D. Cal. Sept. 29, 2009) (finding that plaintiffs' conclusory assertion that "[d]efendants' failure to effectively provide the required disclosures and notices" was insufficient to equitably toll the statute of limitations); Tanuvasa v. FDIC, 2009 U.S. Dist. LEXIS 87673, at *7 (C.D. Cal. Sept. 23, 2009) (finding no basis for equitable tolling because plaintiff did not plead facts suggesting that defendants took steps to prevent her from discovering the alleged disclosures).
Plaintiffs identify "Ophilia" as the Summit representative and states that the misrepresentations occurred during the loan transaction in December 2005 and January 2006, prior to the loan closing. (Compl. ¶¶ 24-25, 30-31.) Plaintiffs allege that "Ophilia" represented that the interest rate would be approximately 6%, which induced them into signing the loan documents. (Id. ¶¶ 30-31.) Plaintiffs explain that the assurance that the interest rate would be approximately 6% was misleading because the alleged actual interest rate for each loan was near or over 10%. (Id. ¶ 30.)
However, because the statements were made in December 2005 and January 2006, and the alleged falsity would been discovered when the first payment became due, plaintiffs' claim is barred by the statute of limitations. Furthermore, plaintiffs do not plead any facts beyond conclusory assertions to explain why the statute of limitations should be tolled.
Accordingly, Summit's motion to dismiss the Sixth claim is GRANTED.
3. Fraud Claim Against Scrima
With respect to Scrima, the court finds that plaintiffs fail to allege facts to give adequate notice to Scrima of the nature of the claim. In the complaint, plaintiffs allege only that Scrima denied plaintiffs' request for a single fixed-rate loan. Plaintiffs do not specify any facts explaining why this is a misrepresentation, much less allege facts showing the other elements of a fraud claim.
Accordingly, Scrima's motion to dismiss the Sixth claim is GRANTED.
G. Breach Of Contract
Plaintiffs' Eighth claim alleges that Scrima, together with Ownit, breached a number of agreements with plaintiffs. (Compl. ¶ 108.) In California, "[a] cause of action for breach of contract requires proof of the following elements: (1) existence of the contract; (2) plaintiff's performance or excuse for nonperformance; (3) defendant's breach; and (4) damages to plaintiff as a result of the breach." CDF Firefighters v. Maldonado, 158 Cal. App. 4th 1226, 1239 (2008).
Plaintiffs, however, fail to allege any facts in the complaint that identify the existence of a contract between Scrima and plaintiffs. Plaintiffs also allege no facts showing how Scrima breached the contract. Plaintiffs, instead, make general allegations against Scrima and Ownit without identifying what contract which party entered into and how each party breached the alleged contract. These allegations do not give Scrima fair notice of the nature the claim against him.
Plaintiffs attempt to save the claim by alleging an oral contract that occurred during the loan transaction in January or February of 2006. (Pls.' Opp'n Summit Scrima at 25.) However, the two-year statute of limitations ran in early 2008. See Cal. Civ. Proc. § 339. Plaintiffs also do not allege any facts that would allow the court to toll the statute of limitations. Accordingly, the statute of limitations bars this claim.
Accordingly, Scrima's motion to dismiss the Eighth claim is GRANTED.
H. Breach Of Implied Covenant Of Good Faith And Fair Dealing
As plaintiffs request that the court dismiss this claim against Wolf, the court need not address Wolf's arguments on this issue.
The Ninth claim asserts generally that defendants failed to act in good faith and fair dealing when carrying out their duties under "the contract that is at issue in this action." (Compl. ¶ 114.)
"The prerequisite for any action for breach of the implied covenant of good faith and fair dealing is the existence of a contractual relationship between the parties." Smith v. City County of San Francisco, 225 Cal. App. 3d 38, 49 (1990). "To establish a breach of an implied covenant of good faith and fair dealing, a plaintiff must establish the existence of a contractual obligation, along with conduct that frustrates the other party's rights to benefit from the contract." Fortaleza v. PNC Fin. Servs. Group, Inc., 2009 U.S. Dist. LEXIS 64624, at **15-16 (N.D. Cal. July 27, 2009). The "implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract." Pasadena Live, LLC v. City of Pasadena, 114 Cal. App. 4th 1089, 1093-1094 (2004). "[T]he implied covenant will only be recognized to further the contract's purpose; it will not be read into a contract to prohibit a party from doing that which is expressly permitted by the agreement itself." Wolf v. Walt Disney Pictures and Television, 162 Cal. App. 4th 1107, 1120 (2008).
1. Claim Against Litton and Summit
Plaintiffs plead no facts that identify the existence of any contract between plaintiffs and Litton or Summit. As this claim is a derivative of a breach of contract claim, plaintiffs' failure to allege the existence of a contract between plaintiffs and each of the defendants is fatal to the claim.
Accordingly, the motion of Litton and Wolf to dismiss the Ninth claim is GRANTED.
2. Claim Against Scrima
As plaintiff's claim must be predicated on a the existence of a contract, this claim fails for the same reasons the breach of contract claim fails. Accordingly, Scrima's motion to dismiss the Ninth claim is GRANTED.
I. Wrongful Foreclosure
Plaintiffs' Tenth claim alleges a wrongful foreclosure claim against Litton and Wolf. The claim is predicated on violations of Section 2923.5(b) of the California Civil Code and Section 3301 of the California Commercial Code.
1. California Civil Code § 2923.5(b)
To support the claim that Litton and Wolf violated Section 2923.5(b), plaintiffs allege that defendants failed to record and give notice of the Notice of Default. (Compl. ¶ 127.) Plaintiffs also premise this allegation on Litton's failure to respond to the purported QWR. (Id.)
Plaintiffs' allegations do not correspond to the requirements of § 2923.5(b). Section 2923.5(b) of the California Civil Code merely provides that a declaration shall be included in a notice of default stating that "the mortgagee, beneficiary, or authorized agent . . . has contacted the borrower . . . or tried with due diligence to contact the borrower." It does not set forth any requirements relating to recording a notice of default or responding to a QWR. Moreover, the court notes that the operative Notice of Default included a Declaration of Compliance as to section 2923.5(b), which provides that the "mortgagee, beneficiary, or authorized agent tried with due diligence but was unable to contact the borrower to discuss the borrower's financial situation and to explore options for the borrower to avoid foreclosure." (Litton's Request For Judicial Notice ("Litton's RJN") Ex. C.) As plaintiffs have not explained or identified any deficiency with this document, the court accepts that the contents are true. Therefore, plaintiffs have not stated a claim based on the purported violation of Section 2923.5(b). See Benham, 2009 U.S. Dist. LEXIS 91287, at *20 (holding that plaintiff did not state a wrongful foreclosure claim based on the violation of Section 2923.5(b) when the plaintiff did not contest the declaration of compliance); see also Kuoha v. Equifirst Corp., 2009 U.S. Dist. LEXIS 94699, at *12 (S.D. Cal. Oct. 7, 2009).
Accordingly, to the extent that plaintiffs' claim is predicated on a violation of Section 2923.5, defendants' motion to dismiss is GRANTED.
2. California Commercial Code § 3301
To support their claim that Litton and Wolf violated Section 3301 of the Commercial Code, plaintiffs allege that Litton and Wolf have never been in possession of the promissory note, are not beneficiaries, assignees or employees of the note-holder, and, accordingly, are not "entitled to enforce" the security interest in the property at issue. (Compl. ¶ 22.) As plaintiffs doubt defendants' legal authority to initiate foreclosure proceedings due to the substitution of Wolf as trustee, plaintiffs assert that possession and production of the original promissory note is necessary to "test the efficacy and legality of the purported substitutions." (Pls.' Opp'n Wolf at 19-21.)
Section 3301 of the California Commercial Code defines a "[p]erson entitled to enforce" as "(a) the holder of the instrument, (b) a nonholder in possession of the instrument who has the rights of a holder, or (c) a person not in possession of the instrument who is entitled to enforce the instrument . . ." However, possession of the original promissory note is not required to carry out a nonjudicial foreclosure. See e.g. Garcia v. HomEq Servicing Corp., 2009 U.S. Dist. LEXIS 77697, at * 11 (E.D. Cal. Aug. 18, 2009); Rangel v. DHI Mortg. Co., Ltd., 2009 U.S. Dist. LEXIS 65674, at *24 (E.D. Cal. July 20, 2009); Pantoja v. Countrywide Home Loans, Inc., 2009 U.S. Dist. LEXIS 70856, at *14 (N.D. Cal. July 9, 2009); Calderon v. Endres, 2009 U.S. Dist. LEXIS 57936 , at *8 (S.D. Cal. July 7, 2009). A mere allegation that a trustee or a lender does not have the original note or has not received it is insufficient to render the foreclosure proceeding invalid. See Neal v. Juarez, 2007 U.S. Dist. LEXIS 98068, at *8 (S.D. Cal. 2007). Accordingly, the court finds that plaintiffs' argument predicated on Litton and Wolf's failure to produce or show possession of the note is unavailing.
The court rejects plaintiffs' argument that defendants' failure to show possession of the original promissory note will only engender fraudulent conduct. When the beneficial interest under the promissory note is assigned, the assignee may exercise a security interest in real property provided that the assignment is acknowledged and recorded. Cal. Civ. Code § 2932.5. "When a mortgage is sold, physical transfer of the note is not required."Wood v. Aegis Wholesale Corp. , 2009 U.S. Dist. 57151, at *14 (E.D. Cal. July 6, 2009) (citing In re Golden Plan of Cal., 829 F.2d 705, 708-11 (9th Cir. 1986). "[B]ecause a party may come to validly own a beneficial interest in a promissory note without possession of the promissory note itself, and because this interest, if recorded on the deed of trust, carries with it the right to foreclose, possession of the promissory note is not a prerequisite to non-judicial foreclosure." Champlaie v. BAC Home Loans Servicing, 2009 WL 3429622 at *14 (E.D. Cal. Oct. 22, 2009). "[T]he danger of fraud is minimized by the requirement that the deed of trust be recorded, as must be any assignment or substitution of the parties." Id.
The court notes that the document stating the substitution of Wolf as trustee was recorded on July 22, 2009. (Wolf's Request For Judicial Notice ("Wolf RJN") Ex. 3.) That the Notice of Default was recorded on April 14, 2009, three months before the recording of the Substitution of Trustee, does not void the foreclosure proceeding. See Wood, 2009 U.S. Dist. 57151, at *10 (citing U.S. v. Hertz, Inc. v. Niobrara Farms, 41 Cal. App. 3d 68, 85 (1974)). As plaintiffs cite no other theory beyond the failure of Litton and Wolf to show possession of the original note, plaintiffs' claim cannot survive the motion to dismiss. See Wood, 2009 U.S. Dist. 57151, at **14-15 (granting the motion to dismiss with prejudice because the plaintiff merely alleged that the defendant did not have physical possession of the note and did not identify procedural irregularities that would preclude the nonjudicial foreclosure).
Accordingly, Litton and Wolf's motion to dismiss the Tenth claim is GRANTED.
J. Violation Of California Business Professions Code § 17200
The Seventh claim asserts that defendants violated Section 17200 of the California Business Professions Code by engaging in unlawful, unfair, and fraudulent business practices. (Compl. ¶ 103.) Plaintiffs predicate this claim on all the other purported statutory and common law violations alleged in the complaint.
The Unfair Competition Law ("UCL"), California Business and Professions Code §§ 17200, et seq., forbids acts of unfair competition, which include "any unlawful, unfair or fraudulent business act or practice." Cal. Bus. Prof. Code § 17200. "The UCL is broad in scope, embracing anything that can properly be called a business practice and that at the same time is forbidden by law." People ex rel. Gallegos v. Pacific Lumber Co., 158 Cal. App. 4th 950, 959 (2008) (internal citations omitted). However, a cause of action under this section must be tethered to conduct that violates a law or a legislatively declared policy. See In re Tobacco Cases II, 41 Cal. 4th 1257, 1266 (2007) ("By defining unfair competition to include any unlawful business act or practice, the unfair competition law permits violations of other laws to be treated as unfair competition that is independently actionable") (internal citations omitted); Cel-Tech Commc'ns v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 186-87 (1999) (holding that a claim under Section 17200 that alleged anticompetitive practices had to be tethered to conduct that violated an antitrust law).
1. Claim Against Litton And Wolf
As plaintiffs' other claims against Litton and Wolf do not survive the motion to dismiss, this claim fails for the same reasons those claims are deficient.
Accordingly, the motions of Litton and Wolf to dismiss the Seventh claim is GRANTED.
2. Claim Against Summit
To the extent that this claim is premised on the RESPA violation, fraud, and breach of implied covenant of good faith and fair dealing, this claim fails for the same reasons those claims are deficient. To the extent that this claim is predicated on the negligence and breach of fiduciary duty claims, for the reasons set forth above, Summit's motion to dismiss is DENIED.
3. Claim Against Scrima
To the extent that this claim is premised on fraud, breach of contract, and breach of implied covenant of good faith and fair dealing, this claim fails for the same reasons those claims are deficient. To the extent that this claim is predicated on the negligence and breach of fiduciary duty claims, for the reasons set forth above, Scrima's motion to dismiss is DENIED.
K. Motion For A More Definite Statement
In the alternative, Summit and Scrima request the court to grant a motion for a more definite statement if the motion to dismiss is denied.
The only claims that survive Summit's and Scrima's motion to dismiss are the Third, Fifth, and Seventh claims for relief. While the court finds that plaintiffs' may have alleged some facts to allow the court to infer plausible claims against Summit and Scrima, nonetheless, the Third, Fifth, and Seventh claims are nothing more than blanket allegations against all the named defendants. Plaintiffs do not make clear in the complaint how Summit and Scrima owe them a duty and attempt to cure this deficiency only in the opposition. Plaintiffs' tactic of making blanket allegations in the complaint before asserting new factual allegations in the opposition is not limited to the Third, Fifth, and Seventh claims for relief, but is a deficiency that infects the entire complaint. In short, the court finds that plaintiffs have adopted "shotgun" pleading tactics to thwart defendants' ability to frame a responsive pleading. In light of plaintiffs' pleading strategy, the court finds that a motion for a more definite statement is appropriate to allow Summit and Scrima to meaningfully respond to plaintiffs' allegations. See Marx, 855 F.2d at 792.
Accordingly, for the claims that survive the motion to dismiss, Summit's and Scrima's motion for a more definite statement is GRANTED.
CONCLUSION
For the foregoing reasons, defendants' motions to dismiss plaintiffs' complaint are GRANTED in part and DENIED in part.
(1) Litton's motion to dismiss the claims against it is GRANTED.
(2) Summit and Scrima's motion to dismiss the Third, Fifth, and Seventh claims is DENIED. The motion to dismiss all other claims against them is GRANTED.
(3) Wolf's motion to dismiss the claims against it is GRANTED.
Defendants Summit and Scrima's motion for a more definite statements is GRANTED. Plaintiffs are granted fifteen (15) days from the date of this order to file an amended complaint in accordance with this order. Defendants are granted thirty (30) days from the date of service of plaintiffs' amended complaint to file a response thereto.
IT IS SO ORDERED.