Summary
noting that district courts throughout the Ninth Circuit have determined a foreclosure is not "debt collection" under the FDCPA
Summary of this case from Cruz v. Nationwide Reconveyance, LLCOpinion
Case No. 11-cv-03475 (NC)
04-13-2012
KITTY YINLING ZHANG, Plaintiff, v. COUNTRYWIDE HOME LOANS, INC. and others, Defendants.
ORDER GRANTING MOTIONS TO DISMISS
Re: Dkt. Nos. 29, 36
In this action for claims arising out of a residential foreclosure, defendants move to dismiss all twelve claims in Zhang's amended complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). As Zhang fails to state a claim under RESPA, TILA, and the FDCPA, and because the deficiencies of these claims cannot be cured by amendment, these claims are DISMISSED WITH PREJUDICE. Because the Court declines to exercise supplemental jurisdiction over the remaining claims, all of which are brought under California law, these claims are DISMISSED WITHOUT PREJUDICE. //
I. BACKGROUND
A. The Parties and Loan at Issue
Plaintiff Zhang, appearing pro se, is the owner of real property located in San Leandro, California ("the property"). Am. Compl. ¶ 1, Dkt. No. 26.
On May 11, 2004, Zhang obtained a $257,000 adjustable-rate loan from Professional Mortgage Corporation to refinance the existing mortgage on the property ("the loan"). Req. for Judicial Notice, Ex. A ¶ 1, Dkt. No. 29. The terms of the loan are contained in the adjustable rate note for the loan ("the note"). Id. The initial interest rate for the loan was 4.5%, but this rate would be adjusted annually starting on June 1, 2007, based on a variable index. Id. ¶ 4. The loan was secured by a deed of trust that encumbered the property. Zhang ultimately became unable to make payments on the loan, and defendants initiated a nonjudicial foreclosure on the property.
The defendants in this action are (1) Countrywide Home Loans, a servicer of the loan that had a conduit/agent relationship with Professional Mortgage, which was the lender of the loan but is not a defendant in this action because it is out of business; (2) Bank of America, which became a servicer of the loan after it acquired Countrywide; (3) Recontrust Company, which was the trustee under the deed of trust; and (4) Mortgage Electronic Registration Systems ("MERS"), which was the beneficiary under the deed of trust. Am. Compl. ¶¶ 1-6. Zhang claims that all defendants acted "in concert" and were agents or employees of each other. Id. ¶ 10.
B. Procedural History
The Court dismissed Zhang's initial complaint with leave to amend on September 30, 2011, for failure to file an opposition to defendants' motion to dismiss under Rule 12(b)(6). Dkt. No. 21. Zhang filed an amended complaint on November 1, 2011. Dkt. No. 26.
All parties consented to the jurisdiction of a magistrate judge under 28 U.S.C. § 636(c). Dkt. Nos. 11, 14, 43.
C. Zhang's Claims
First, Zhang claims that defendants negligently misrepresented their authority to foreclose on the loan in violation of California Civil Code § 2924. Second, Zhang claims that defendants misrepresented material aspects of the loan in violation of the following federal and state laws: (1) the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2605; (2) the Truth In Lending Act (TILA), 15 U.S.C. § 1601; (3) the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692; (4) the Rosenthal Fair Debt Collection Practices Act, CAL. CIV. CODE §§ 1788-1788.3; and (5) California's Unfair Competition Law, CAL. BUS. & PROF. CODE §§ 17200-17210. Finally, Zhang brings two claims against defendants for unjust enrichment and fraud. As remedies for these alleged violations, Zhang seeks an injunction to prevent defendants from foreclosing on the property, rescission of the mortgage transaction, actual and statutory damages, and attorneys' fees.
Defendants bring two motions to dismiss under Rule 12(b)(6). The first was filed by defendants Countrywide Home Loans, Bank of America, and Recontrust Company. Dkt. No. 29. The second was filed by defendant Mortgage Electronic Registrations Systems. Dkt. No. 36.
II. STANDARD OF REVIEW
To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a plaintiff must plead his claim with sufficient specificity to "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 545, 555 (2007). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. 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." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citation and internal quotation marks omitted). A court is not required to accept as true conclusory allegations, unreasonable inferences, or unwarranted deductions of fact. Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). If a complaint lacks facial plausibility, a court must grant leave to amend unless it is clear that the complaint's deficiencies cannot be cured by amendment. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002). //
III. DISCUSSION
A. Documents Considered by the Court
Defendants request that the Court take judicial notice of the following documents: (1) the adjustable rate note concerning the loan; (2) a recorded deed of trust concerning the property; (3) a recorded notice of default with respect to the property; and (4) a recorded notice of trustee's sale with respect to the property dated February 17, 2009. Req. for Judicial Notice, Dkt No. 29.
Zhang requests judicial notice of the following documents: (1) a debt validation notice sent by Recontrust to Zhang; (2) a recorded substitution of trustee form; (3) a non-recorded notice of trustee's sale dated May 19, 2009; (4) a recorded notice of trustee's sale dated September 29, 2011; (5) a recorded notice of assignment of the deed of trust dated July 30, 2010; (6) a letter from Countrywide to Zhang sent on June 14, 2004; (7) a letter from Recontrust to Zhang sent on August 17, 2009; and (8) a copy of a Qualified Written Request (QWR) that Zhang sent to Bank of America on December 28, 2010. Req. for Judicial Notice, Dkt. No. 41.
The Court may consider all of these documents under Federal Rule of Civil Procedure 10(c), as their contents are alleged in the operative complaint and their authenticity was not disputed by the parties. Fed. R. Civ. P. 10(c) ("A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes."); see also In re Stac Elec. Sec. Litig., 89 F.3d 1399, 1405 n.4 (9th Cir.1996) (noting that complete copies of documents whose contents are alleged in the complaint and whose authenticity is not questioned may be considered in ruling on a motion to dismiss under Rule 12(b)(6)).
B. RESPA Claims
Zhang alleges that defendants violated RESPA, 12 U.S.C. § 2605, in two ways: first, by failing to make adequate disclosures, and second, by failing to respond properly to Zhang's Qualified Written Request (QWR).
Defendants argue that Zhang alleges no facts to support her claim for inadequate disclosures, and that Zhang's QWR does not concern a servicing error as required by RESPA.
The Court finds that Zhang fails to state a claim for a violation of 12 U.S.C. § 2605 under either of her theories.
1. Overview of RESPA
a. Purpose of RESPA
The purpose of RESPA, 12 U.S.C. §§ 2601-2617, is to protect consumers from abusive practices in the real estate settlement process. 12 U.S.C. § 2601. By enacting RESPA, Congress sought to "increase the supply of information available to mortgage consumers about the cost of home loans in advance of settlement, and to eliminate abusive practices such as kickbacks, referral fees, and unearned fees." Schuetz v. Banc One Mortg. Corp., 292 F.3d 1004, 1008 (9th Cir. 2002).
b. Interpretation of RESPA's provisions
The Bureau of Consumer Financial Protection is authorized to implement RESPA by prescribing rules and regulations and making interpretations of RESPA. 12 U.S.C. § 2617(a). These rules and regulations are contained in Regulation X, 24 C.F.R. §§ 3500.1-3500.23.
c. Scope of RESPA
RESPA applies to "federally related mortgage loans," which are made by or sold to certain federal agencies, or are made by creditors who invest more than $1,000,000 in real estate loans per year. 12 U.S.C. § 2602(1).
d. Required mortgage-related disclosures under RESPA
RESPA requires a creditor to provide to any loan applicant a booklet prepared by the Bureau and a good faith estimate of the amount of settlement costs the applicant may incur. 12 U.S.C. § 2604(c)-(e).
RESPA requires a servicer to provide to any loan applicant information with respect to the transferability and transfers of the loan. 12 U.S.C. § 2605(a)-(d).
(i) Damages
Failure to make disclosures under § 2605 may entitle the borrower to damages and attorneys' fees and costs. 12 U.S.C. § 2605(f).
(ii) Statute of limitations as a defense to damages
A borrower's claim for violations under § 2605 must be brought within three years of "the date of occurrence of the violation." 12 U.S.C. § 2614.
e. Qualified Written Requests (QWRs)
RESPA requires a servicer of federally related mortgage loans to respond to borrower inquiries "for information relating to the servicing of such loan[s]." 12 U.S.C. § 2605(e)(1)(A). The inquiries must be in the form of a "qualified written request," which is comprised of (1) a written correspondence, (2) that identifies the name and account of the borrower, and (3) states the reasons why the borrower believes the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower. 12 U.S.C. § 2605(e)(1)(B). A servicer must acknowledge receipt of a QWR within twenty days of receiving it, and must provide to the borrower within sixty days of receiving the QWR a written explanation of the reasons why the account is or is not in error. 12 U.S.C. §§ 2605(e)(1)(A), 2605(e)(2).
(i) Damages
Failure to respond to a QWR may entitle the borrower to damages and attorneys' fees and costs. 12 U.S.C. § 2605(f).
(ii) Statute of limitations as a defense to damages for inadequate QWRs
Borrowers' claims for violations under § 2605 must be brought within three years "from the date of occurrence of the violation." 12 U.S.C. § 2614.
f. Other RESPA prohibitions
RESPA prohibits any person from giving or accepting fees, kickbacks, or things of value as part of the real estate settlement process, or splitting fees received for the rendering of a real estate settlement service, 12 U.S.C. § 2607; requiring the borrower to purchase insurance to cover the property, 12 U.S.C. § 2608; or requiring the borrower to put certain moneys in an escrow account, 12 U.S.C. § 2609.
(i) Damages
Violations of these provisions may entitle the borrower to damages and attorneys' fees and costs, and may subject the creditor to criminal or regulatory penalties. See 12 U.S.C. § 2607(d); 12 U.S.C. § 2608(b); 12 U.S.C. § 2609(d).
(ii) Statute of limitations as a defense to damages
Claims for violations of § 2607 or § 2608 must be brought within one year "from the date of the occurrence of the violation." 12 U.S.C. § 2614.
g. Potential parties to a RESPA action
A "creditor" is a person, natural or not, to whom the debt is initially payable on the face of the promissory note or other agreement of indebtedness and that regularly extends consumer credit that is payable in more than four installments or that requires the payment of a finance charge. 12 U.S.C. § 2602(1) (citing 15 U.S.C. § 1602(g)). A creditor also must invest more than $1,000,000 in real estate loans per year. Id.
A "servicer" is the person responsible for "receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan . . . and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan." 12 U.S.C. § 2605(i)(2)-(3).
2. Zhang Fails to State a Claim for Inadequate Disclosures Under § 2605
Zhang states conclusorily that "at the time of the closing of the loan," defendants violated 12 U.S.C. § 2605 by failing to "correctly and accurately comply with [RESPA's] disclosure requirements." Am. Compl. ¶ 42. Zhang alleges no facts to identify the RESPA disclosures defendants allegedly failed to make. The disclosures required by § 2605 concern the transfer of loans. As Zhang does not plead any factual matter in her complaint concerning disclosures with respect to the transfer of any loan, Zhang fails to state a claim for failure to make disclosures under 12 U.S.C. § 2605. See 12 U.S.C. § 2605(a)-(c) (loan-transfer provisions). Accordingly, this claim is dismissed with prejudice.
3. Zhang Fails to State a Claim for Inadequate QWR Responses Under § 2605
Alternatively, Zhang claims that defendants violated 12 U.S.C. § 2605 by "refusing to provide a proper written explanation or response" to her QWR. Am. Compl. ¶¶ 43-44. Zhang incorporates by reference into her complaint the QWR she allegedly sent to defendants. Id. ¶ 8.
A QWR is (1) a written correspondence, (2) that identifies the name and account of the borrower, and (3) states the reasons why the borrower believes the account is in error. 12 U.S.C. § 2605(e)(1)(B). A servicer is required to respond to a QWR only to the extent that it concerns "information relating to the servicing of [the] loan." 12 U.S.C. § 2605(e)(1)(A). Servicing is defined as "receiving any scheduled periodic payments from a borrower . . . and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower." 12 U.S.C. § 2605(i)(3).
Here, Zhang's QWR requests information relating to the origination, as opposed to the servicing, of her loan. See, e.g., Am. Compl. ¶ 8(f) ("Provide the names of each lender, servicer, creditor or owner and provide a copy of any notice of cancellation rights, notice of rescission rights, or correspondence or written document discussing cancellation rights or rescission rights to plaintiff."). Accordingly, this claim is dismissed with prejudice. See Consumer Solutions REO, LLC v. Hillery, 658 F. Supp. 2d 1002, 1014 (N.D. Cal. 2009) (dismissing with prejudice RESPA claim under § 2605 because the plaintiff's QWR disputed the validity of the loan and not the loan's servicing).
C. TILA Claims
Zhang claims that defendants failed to disclose the interest rate, negative amortization, discount interest rate, and composite interest rate with respect to the loan as required by TILA, and that these violations "are apparent on the face of the TILA disclosure." Am. Compl. ¶¶ 51-52. Zhang seeks rescission and damages for these alleged violations, and argues that the statute of limitations on her claims should be equitably tolled. Zhang does not attach defendants' TILA disclosure statement to her complaint or allege any of the figures contained in that statement.
Defendants argue that Zhang's claims for rescission and damages under TILA are time-barred and must be dismissed as a matter of law. Second, defendants argue that Zhang's claims must be dismissed as a matter of law to the extent they are "based solely on origination of the loan," because none of them "were the lender" or were involved in the origination of the loan. Finally, defendants argue Zhang fails to state a claim with respect to any of her TILA claims.
The Court finds that Zhang's claims under TILA are time-barred and must be dismissed as a matter of law.
1. Overview of TILA
a. Purpose of TILA
The purpose of TILA, 15 U.S.C. §§ 1601-1667f, is to "assure a meaningful disclosure of credit terms" to avoid the uninformed use of credit and to "protect the consumer against inaccurate and unfair credit billing and credit card practices." 15 U.S.C. § 1601(a). TILA "requires creditors to provide borrowers with clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower's rights." Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998) (citing 15 U.S.C. §§ 1631-32, 1635, 1638). "Technical or minor violations of TILA or Reg[ulation] Z, as well as major violations, impose liability on the creditor and entitle the borrower to rescind." Semar v. Platte Valley Fed. Sav. & Loan Ass'n, 791 F.2d 699, 704 (9th Cir. 1986).
b. Interpretation of TILA's provisions
"To effectuate TILA's purpose, a court must construe the Act's provisions liberally in favor of the consumer and require absolute compliance by creditors." Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114, 1118 (9th Cir. 2009) (citation and internal quotation marks omitted).
Regulation Z, 12 C.F.R. §§ 226-226.59, was issued by the Board of Governors of the Federal Reserve System under 15 U.S.C. § 1604 to implement TILA. Courts must defer to Regulation Z in interpreting the Act. See Hauk, 552 F.3d at 1118.
c. Scope of TILA
TILA applies to a credit transaction when (1) the credit is offered to "consumers"; (2) the offering or extension of credit is done regularly; (3) the credit is subject to a finance charge or payable in more than four installments; and (4) the credit is for personal, family, or household purposes. 12 C.F.R. § 226.1(c)(1).
d. Potential parties to a TILA action
A "consumer" is a natural person who will use the money, property, or services that are the subject of the credit transaction primarily for personal, family, or household purposes. 15 U.S.C. § 1602(i).
A "creditor" is a person, natural or not, to whom the debt is initially payable on the face of the promissory note or other agreement of indebtedness and that regularly extends consumer credit that is payable in more than four installments or that requires the payment of a finance charge. 15 U.S.C. § 1602(g).
An "assignee" of a creditor in a credit transaction secured by real property may be liable for that creditor's TILA violation if the TILA violation is "apparent on the face of the disclosure statement" provided in connection with the transaction, and the assignment to the assignee was voluntary. 15 U.S.C. § 1641(e)(1). A TILA violation is apparent on the face of the disclosure statement if (1) it can be determined to be inaccurate or incomplete by "comparison among the disclosure statement, any itemization of the amount financed, the note, or any other disclosure of disbursement," or (2) the disclosure statement does not use the terms or format required by TILA. 15 U.S.C. § 1641(e)(2).
A "servicer" is not a creditor under TILA unless it is or was the owner of the obligation. 15 U.S.C. § 1641(f)(1). A servicer also is not a creditor under TILA if its ownership of the loan arose solely "on the basis of assignment for administrative convenience." 15 U.S.C. § 1641(f)(2).
e. Required disclosures in the context of residential mortgages
Title 15 U.S.C. § 1638 and 12 C.F.R. § 226.18 contain the disclosures creditors are required to make with respect to residential mortgage transactions. The disclosures must reflect the terms of the legal obligation between the creditor and the borrower, such as the amount financed, the finance charge, and the annual percentage rate. 12 C.F.R. § 226.18. "The disclosures are intended to make the terms of the contractual agreement accessible to the consumer." Rossman v. Fleet Bank (R.I.) Nat. Ass'n, 280 F.3d 384, 390 (9th Cir. 2002). "[T]he issuer must not only disclose the required terms, it must do so accurately. The accuracy demanded excludes not only literal falsities, but also misleading statements." Id. at 390-91. The disclosures must be clearly and conspicuously in writing in a form that the consumer may keep, and they must be segregated from everything else. 12 C.F.R. § 226.17(a)(1). The disclosures must be made before the consummation of the transaction, unless special timing rules apply to the transaction. 12 C.F.R. § 226.17(b).
Residential mortgage transactions covered by RESPA are subject to special timing rules under TILA, but only if the loan application at issue was received on or after July 30, 2009. 15 U.S.C. § 1638; see also 74 Fed. Reg. 23,289, 23,290 (May 19, 2009). For mortgage transactions that fall under this category, the creditor must make "good faith estimates" of the disclosures required by 12 C.F.R. § 226.18 and must mail them to the borrower no later than three business days after the creditor receives the borrower's application. 12 C.F.R. § 226.19(a)(1)(i).
Generally, a creditor is not required to make further disclosures based on events subsequent to the loan transaction. 15 U.S.C. § 1634. However, a creditor must make further disclosures if refinancings, assumptions, or variable-rate adjustments take place, 12 C.F.R. § 226.20; or if the disclosures given prior to the date of consummation are made inaccurate by a subsequent event, 12 CFR § 226.17(f).
Adjustable-rate mortgages secured by the borrower's principal dwelling are subject to additional disclosures. See 12 C.F.R. §§ 226.19(b), 226.30(a). A failure to provide these additional disclosures constitutes a failure to fully disclose the annual percentage rate as required by 15 U.S.C. § 1638. 12 C.F.R. § 226.23(a)(3) Official Staff Commentary.
f. Application of TILA to refinanced loans
A refinancing occurs when an existing obligation subject to TILA is satisfied and replaced by a new obligation undertaken by the same consumer. 12 C.F.R. § 226.20(a). Because refinancing creates a new transaction, it requires new disclosures to the consumer under TILA. Id.
g. Sanctions and remedies for TILA violations
(i) Damages
A creditor's failure to make disclosures required by TILA may entitle the borrower to actual and statutory damages, as well as litigation costs and reasonable attorneys' fees. 15 U.S.C. § 1640(a). When the creditor's failure to make required disclosures relates to a loan secured by a dwelling, the statutory damages in an individual action are "not less than $400 or greater than $4,000." 15 U.S.C. § 1640(a)(2)(A).
(ii) Statute of limitations as a defense to damages
An action for damages under § 1640 must be brought within "one year from the date of the occurrence of the violation," unless the borrower asserts the violation as a defense in an action brought by the creditor to collect the debt. 15 U.S.C. §1640(e); see also Consumer Solutions REO, LLC v. Hillery, 658 F. Supp. 2d 1002, 1007 (N.D. Cal. 2009) ("A strict reading of the applicable statutes demonstrates that an action for damages, as distinct from an action for rescission, must be brought within one year.").
The Ninth Circuit has held that "the limitations period in Section 1640(e) runs from the date of consummation of the transaction but that the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA action." King v. State of California, 784 F.2d 910, 915 (9th Cir. 1986). When "nothing prevented" the borrower from discovering the fraud or nondisclosures by comparing the loan contract, the lender's disclosures, and TILA's statutory and regulatory requirements, equitable tolling is inappropriate. Hubbard v. Fidelity Fed. Bank, 91 F.3d 75, 79 (9th Cir. 1996); see also Consumer Solutions, 658 F. Supp. 2d at 1007-08 (dismissing TILA claim for damages with prejudice because plaintiff did not allege equitable tolling in her complaint or opposition to motion to dismiss).
(iii) Rescission
1. Rescission as a matter of right
When the credit transaction is secured by the borrower's principal dwelling, the borrower may rescind the transaction "until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later." 15 U.S.C. § 1635(a). The creditor has the duty to inform the borrower of his right to rescind. Id. To exercise this right, the borrower must notify the creditor of his intent to rescind. Id.
Once the borrower notifies the creditor, the security interest becomes void and the creditor must return all payments made by the borrower within twenty days. 15 U.S.C. § 1635(b). When the creditor complies with these requirements, the borrower must tender the property or its reasonable value. Id. These procedures, however, are not mandatory under TILA; they "apply except when otherwise ordered by a court." Id. The Ninth Circuit has held that a district court has discretion to require the borrower seeking rescission to show that he is capable of tendering the property or its reasonable value when his request for rescission is subject to dismissal, as the borrower must tender before rescission can be effected under 15 U.S.C. § 1635(a). See Yamamoto v. Bank of New York, 329 F.3d 1167, 1173 (9th Cir. 2003).
2. Rescission rights in foreclosure
When the credit transaction is secured by the borrower's principal dwelling, the borrower has the right to rescind the transaction after a judicial or nonjudicial foreclosure is initiated on the borrower's principal dwelling if (1) a mortgage fee is not included in the finance charge or (2) the borrower did not receive appropriate written notice of his right of rescission. 15 U.S.C. § 1635(i).
3. Rescission of refinanced loans
The Ninth Circuit has held that a borrower does not have a right to rescind under § 1635 a loan that was refinanced, because the act of refinancing "supersede[s]" the original deed of trust with a new obligation. King v. State of California, 784 F.2d 910, 913 (9th Cir. 1986); see also 15 U.S.C. § 1635(e)(2). Rescission is available with respect to the new obligation, however.
4. Statute of limitations as a defense to rescission
The right to rescind under TILA has a limitations period that "expire[s] three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first," even if the creditor never made the required disclosures. 15 U.S.C. § 1635(f). TILA "permits no federal right to rescind, defensively or otherwise, after the 3-year period of § 1635(f) has run." Beach v. Ocwen Federal Bank, 523 U.S. 410, 419 (1998).
2. Zhang's TILA Claims for Rescission and Damages Are Time-Barred
First, Zhang seeks rescission of the loan under 15 U.S.C. § 1635(i), as she claims that defendants failed to provide her with notice of her right to rescind the loan. Am. Compl. ¶¶ 86, 92.
Here, Zhang's claim for rescission under § 1635(i) is time-barred, as the three-year statute of limitations on the claim has run. The loan was consummated on May 11, 2004, but Zhang did not file this action until July 15, 2011, more than seven years after the date of consummation. Because the statute of limitations on a claim for rescission cannot be tolled, Zhang's claim for rescission is dismissed with prejudice. See Beach, 523 U.S. at 419.
Second, Zhang seeks damages under 15 U.S.C. § 1640(e) for defendants' alleged failure to make disclosures required by TILA. Am. Compl. ¶ 53. She claims that as a result of defendants' misrepresentations and fraudulent concealment of material facts relating to her claim for damages, the statute of limitations on her claim must be equitably tolled. Id. ¶ 85.
A borrower may recover actual and statutory damages, as well as litigation costs and reasonable attorney's fees, if the borrower succeeds in establishing the creditor's TILA violations. 15 U.S.C. § 1640(a). An action for damages under TILA must be brought within "one year from the date of the occurrence of the violation." 15 U.S.C. §1640(e). The Ninth Circuit has held that "the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA action." King, 784 F.2d at 915. When "nothing prevented" the borrower from discovering the fraud or nondisclosures by comparing the loan contract, the lender's disclosures, and TILA's statutory and regulatory requirements, however, equitable tolling is inappropriate. Hubbard, 91 F.3d at 79.
Here, even if the statute of limitations on Zhang's damages claim is tolled until she actually discovered defendants' TILA violations, her claim still is time-barred. Zhang's claims for damages arose on May 11, 2004, the date on which the loan was consummated; yet, Zhang did not file her claim until July 2011, more than seven years after the date of consummation. Zhang states conclusorily that the statute of limitations on this claim should be tolled because defendants' fraudulent misrepresentations prevented her from discovering defendants' TILA violations. Zhang alleges that she discovered one of defendants' TILA violations when she received a notice of trustee's sale, which stated that the balance on the loan at that time was $291,235.05. Am. Compl. ¶ 67. Although Zhang does not allege the date of the notice of trustee's sale that alerted her of defendants' TILA violation, she attaches to her complaint a copy of a notice of trustee's sale executed on May 19, 2009, that lists the balance on the loan as $291,235.05. Id., Ex. 6, Notice of Trustee's Sale. Even if the one-year statute of limitations with respect to this claim was tolled until May 19, 2009, Zhang's claim for damages would still be time-barred, as Zhang did not file this action within one year of that date. Accordingly, Zhang's claim for damages under TILA is dismissed with prejudice.
D. FDCPA Claims
Zhang claims that defendants' attempts to foreclose on the property violated 15 U.S.C. § 1692, because they "failed to validate the debt," and "the debt is not owed" to them. Am. Compl. ¶¶ 94-99. Zhang alleges that the notice of default and notice of trustee's sale executed by defendants are defective, as they allegedly contain a loan number that does not correspond to Zhang's loan and were executed by Recontrust, an entity that Zhang alleges did not have the authority to execute such instruments. Zhang claims that defendants were required by the FDCPA to "cease all collection activity" once she put "the validity of the debt in dispute" by notifying them of these alleged defects. Id. Zhang alleges no facts to establish when or how she disputed the debt.
Defendants respond that the FDCPA does not apply to foreclosure activities and that Zhang has not alleged sufficient facts to state a claim under the FDCPA.
The Court finds that Zhang fails to state a claim under 15 U.S.C. § 1692 because she provides evidence showing that defendants validated the debt and therefore were not barred by the FDCPA from foreclosing on the property.
1. Overview of the FDCPA
a. Purpose and scope of the FDCPA
The purpose of the FDCPA, 15 U.S.C. §§ 1692-1692o, is to "eliminate abusive debt collection practices by debt collectors" and to protect consumers against debt collection abuses. 15 U.S.C. § 1692(e).
b. Prohibited conduct under the FDCPA
The FDCPA prohibits debt collectors from invading a borrower's privacy, 15 U.S.C. § 1692b; harassing a borrower, 15 U.S.C. § 1692c-d; making false representations with respect to a debt, 15 U.S.C. § 1692e; employing unfair means to collect a debt, 15 U.S.C. § 1692f; and furnishing deceptive forms, 15 U.S.C. § 1692j.
c. Liability under the FDCPA
"A debt collector who fails to comply with any [FDCPA] provision . . . with respect to any person is liable to such person for actual damages, costs, a reasonable attorney's fee as determined by the court, and statutory additional damages." Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 130 S. Ct. 1605, 1606 (2010) (citing 15 U.S.C. § 1692k(a)) (citation and internal quotation marks omitted). "The FDCPA is a strict liability statute; there is no mental state required to violate it." Cruz v. Int'l Collection Corp., --F.3d--, 2012 WL 742337, at *3 (9th Cir. Mar. 8, 2012) (citation and internal quotation marks omitted).
A claim for any violation of the FDCPA must be brought "within one year from the date on which the violation occurs." 15 U.S.C. § 1692k(d).
d. Potential parties to an FDCPA action
A debt collector is "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C. § 1692a(6). Several persons and entities are excluded from this definition. See 15 U.S.C. § 1692a(6)(A)-(F).
e. Foreclosures as debt collection activities
The question of whether a foreclosure constitutes "debt collection" under the FDCPA has not been decided by the Ninth Circuit, but "district courts throughout the Ninth Circuit have concluded that it does not." Geist v. OneWest Bank, No. 10-cv-1879 SI, 2010 WL 4117504, at *2-3 (N.D. Cal. Oct. 19, 2010) (holding that "foreclosing on a deed of trust does not invoke the statutory protections of the FDCPA" because a foreclosure is not an attempt to collect funds from the debtor) (citations omitted).
2. Zhang Fails to State a Claim under § 1692g for Failure to Validate Debt
Title 15 U.S.C. § 1692g(a) requires a debt collector to send to the borrower within five days of the initial communication with the borrower in connection with the collection of any debt a written letter containing the amount of the debt owed and the name of the creditor to whom the debt is owed. If the borrower disputes the debt, the debt collector must cease all collection activity until the debt collector mails to the borrower a copy of the verification of the debt or the name or address of the original creditor. 15 U.S.C. § 1692g(b).
Here, even assuming that foreclosures fall within the scope of debt collection activities under the FDCPA, Zhang fails to state a claim for relief under 15 U.S.C. § 1692g. Zhang alleges that defendants failed to validate the debt after she disputed it; yet, she attaches to her opposition a letter from Recontrust that states "this will serve as a response to your request for verification of the indebtedness relative to the above identified account" and that lists Zhang's address, the date of the deed of trust on Zhang's property, and the name and address of the original creditor of the loan as required by 15 U.S.C. § 1692g(b). Req. for Judicial Notice, Ex. 7, Dkt. No. 41. Because defendants were not barred from continuing their foreclosure activities after they sent Zhang this letter, Zhang's claim under § 1692g for failure to validate a debt is dismissed with prejudice.
E. The Court Declines to Exercise Supplemental Jurisdiction Over State-Law Claims
In any civil action of which the district court has original jurisdiction, the court has supplemental jurisdiction over related state-law claims that form part of the "same case or controversy." 28 U.S.C. § 1367(a). But if a district court dismisses all federal claims in a complaint, it may decline to exercise supplemental jurisdiction over any remaining state-law claims. 28 U.S.C. § 1367(c); see also Sanford v. MemberWorks, Inc., 625 F.3d 550, 561 (9th Cir. 2010) ("[I]n the usual case in which all federal-law claims are eliminated before trial, the balance of factors to be considered under the pendent jurisdiction doctrine—judicial economy, convenience, fairness, and comity—will point toward declining to exercise jurisdiction over the remaining state-law claims.") (citation and internal quotation marks omitted).
Here, because the Court has dismissed with prejudice all of Zhang's claims under federal law, the Court declines to exercise supplemental jurisdiction over Zhang's claims for violations of California law. 28 U.S.C. § 1367(c). Accordingly, Zhang's claims under the Rosenthal Fair Debt Collection Practices Act, CAL. CIV. CODE §§ 1788-1788.3; under California's Unfair Competition Law, CAL. BUS. & PROF. CODE §§ 17200- 17210; for negligent misrepresentation in violation of California Civil Code § 2924; for unjust enrichment; and for fraud are DISMISSED WITHOUT PREJUDICE. //
IV. CONCLUSION
Defendants' motion to dismiss under Rule 12(b)(6) is GRANTED WITHOUT LEAVE TO AMEND with respect to Zhang's claims under RESPA, TILA, and the FDCPA. All state-law claims are DISMISSED WITHOUT PREJUDICE. Zhang may re-file her state-law claims in state court.
IT IS SO ORDERED. Date: April 13, 2012
/s/_________
Nathanael M. Cousins
United States Magistrate Judge