George Loya v. Western Riverside Council of Governments et al

NOTICE OF MOTION AND MOTION to Dismiss Case

C.D. Cal.January 17, 2017

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ACTIVE/88877357.1 THOMAS M. HEFFERON (pro hac vice) thefferon@goodwinprocter.com MATTHEW S. SHELDON (pro hac vice) msheldon@goodwinprocter.com GOODWIN PROCTER LLP 901 New York Avenue, NW Washington, DC 20001 Tel.: 202.346.4000 Fax.: 202.346.4444 STEVEN A. ELLIS (SBN 171742) sellis@goodwinprocter.com MOLLY K. MADDEN (SBN 281483) mmadden@goodwinprocter.com GOODWIN PROCTER LLP 601 S. Figueroa Street, 41st Floor Los Angeles, California 90017 Tel.: 213.426.2500 Fax.: 213.623.1673 Attorneys for Defendant: RENOVATE AMERICA, INC. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION GEORGE LOYA, On Behalf of Himself and All Others Similarly Situated, Plaintiff, v. WESTERN RIVERSIDE COUNCIL OF GOVERNMENTS and RENOVATE AMERICA, INC., Defendants. Case No. 5:16-cv-02478-AB-KK NOTICE OF MOTION AND MOTION OF RENOVATE AMERICA, INC. TO DISMISS THE COMPLAINT Date: April 3, 2017 Time: 10:00 a.m. Courtroom: 7B Judge: Hon. André Birotte Jr. 350 W. 1st Street Los Angeles, CA 90012 Filed Concurrently with: 1. Memorandum of Points and Authorities; 2. Joinder in Motion to Dismiss and Request for Judicial Notice of WRCOG; 3. Proposed Order Case 5:16-cv-02478-AB-KK Document 34 Filed 01/17/17 Page 1 of 3 Page ID #:382 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ACTIVE/88877357.1 1 TO ALL PARTIES AND THEIR COUNSEL OF RECORD: PLEASE TAKE NOTICE that on Monday, April 3, 2017 at 10:00 a.m., or as soon thereafter as the matter may be heard in Courtroom 7B of the United States District Court located at 350 West 1st Street, Los Angeles, California 90012, Defendant RENOVATE AMERICA, INC. (“Renovate America”) will and hereby does move this Court for an order dismissing the complaint (“Complaint”) filed in this action by plaintiff George Loya (“Loya”), and each purported claim set forth therein against Renovate America, with prejudice (“Motion”). Renovate America moves to dismiss the Complaint on the grounds that Loya does not state any valid claim against Renovate America in the Complaint. Specifically, the Complaint does not state a valid claim against Renovate America under the Truth in Lending Act, 15 U.S.C. §§ 1601, et seq. (“TILA”); the Home Ownership and Equity Protection Act, 15 U.S.C. § 1639 (“HOEPA”); California’s Covered Loan Law, Cal. Fin. Code §§ 4970, et seq. (“CLL”); or California’s Unfair Competition Law, Cal. Bus & Prof. Code, §§ 17200, et seq. (“UCL” or “Section 17200”); or for conspiracy to violate TILA and HOEPA. See Fed. R. Civ. P. 12(b)(6); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554-56 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Renovate America also moves to dismiss the Complaint for failure to join a necessary party, Judith Loya. See Fed. R. Civ. P. 12(b)(7) & 19; Maynard v. Wells Fargo Bank, N.A., 2012 WL 4898021, at *2-3 (S.D. Cal. Oct. 15, 2012). Renovate America also incorporates, by reference, the arguments made by co-defendant Western Riverside Council of Governments (“WRCOG”) in its separately filed motion to dismiss, and Renovate America requests dismissal on those grounds as well. This Motion is based upon this Notice of Motion and Motion, the Memorandum of Points and Authorities in support thereof, Renovate America’s Joinder in the Motion to Dismiss and Request for Judicial Notice of WRCOG filed concurrently herewith, the records, pleadings, and documents on file in this action, Case 5:16-cv-02478-AB-KK Document 34 Filed 01/17/17 Page 2 of 3 Page ID #:383 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ACTIVE/88877357.1 2 and such further and additional evidence and argument as may be presented at or before the time of hearing on this Motion. This Motion is made following the conference of counsel pursuant to L.R. 7- 3, which took place on January 10, 2017. Respectfully submitted, Dated: January 17, 2017 By: /s/ Matthew S. Sheldon THOMAS M. HEFFERON (pro hac vice) thefferon@goodwinprocter.com STEVEN A. ELLIS sellis@goodwinprocter.com MATTHEW S. SHELDON (pro hac vice) msheldon@goodwinprocter.com MOLLY K. MADDEN mmadden@goodwinprocter.com GOODWIN PROCTER LLP Attorneys for Defendant: RENOVATE AMERICA, INC. Case 5:16-cv-02478-AB-KK Document 34 Filed 01/17/17 Page 3 of 3 Page ID #:384 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 THOMAS M. HEFFERON (pro hac vice) thefferon@goodwinprocter.com MATTHEW S. SHELDON (pro hac vice) msheldon@goodwinprocter.com GOODWIN PROCTER LLP 901 New York Avenue, NW Washington, DC 20001 Tel.: 202.346.4000 Fax.: 202.346.4444 STEVEN A. ELLIS (SBN 171742) sellis@goodwinprocter.com MOLLY K. MADDEN (SBN 281483) mmadden@goodwinprocter.com GOODWIN PROCTER LLP 601 S. Figueroa Street, 41st Floor Los Angeles, California 90017 Tel.: 213.426.2500 Fax.: 213.623.1673 Attorneys for Defendant: RENOVATE AMERICA, INC. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION GEORGE LOYA, On Behalf of Himself and All Others Similarly Situated, Plaintiff, v. WESTERN RIVERSIDE COUNCIL OF GOVERNMENTS and RENOVATE AMERICA, INC., Defendants. Case No. 5:16-cv-02478-AB-KK MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF RENOVATE AMERICA, INC. TO DISMISS THE COMPLAINT Date: April 3, 3017 Time: 10:00 a.m. Courtroom: 7B Judge: Hon. André Birotte Jr. 350 W. 1st Street Los Angeles, CA 90012 Filed Concurrently with: 1. Notice of Motion and Motion; 2. Joinder in Motion to Dismiss and Request for Judicial Notice of WRCOG; 3. Proposed Order Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 1 of 34 Page ID #:385 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 i TABLE OF CONTENTS Page BACKGROUND ......................................................................................................... 2 Loya’s PACE Assessment Contract and His Legal Claims ........................................ 3 ARGUMENT ............................................................................................................... 5 I. The TILA and HOEPA Counts Must Be Dismissed. ........................................ 5 A. PACE Assessments Are Not Regulated By TILA or HOEPA. .............. 5 1. PACE Assessments Are Not “Credit.” ......................................... 6 a. The Regulations and Official Staff Interpretation of TILA and HOEPA Exclude Tax Assessments From “Credit.” .............................................................................. 6 b. The Staff Interpretation Is Not “Demonstrably Irrational”— It Is Irrational To Presume Congress Would Silently Infringe on the State Property Tax Assessment Process. ........................................................... 8 c. The Staff Interpretation Creates a Good Faith Defense. ............................................................................ 10 2. PACE Assessments Are Not “Consumer Credit.”...................... 11 3. PACE Assessments Are Not “Residential Mortgage Loans.”.... 12 B. Renovate America Is Not a “Creditor” Under TILA or HOEPA. ........ 13 C. Count Three Also Fails Because There Is No Cause of Action for Conspiracy to Violate TILA or HOEPA. .............................................. 15 D. Count Four Also Fails Because “Steering” Is Not Plead. ..................... 16 II. The State Law Causes of Action Must Be Dismissed. .................................... 17 A. Loya’s Fifth Claim Under the CLL Fails as a Matter of Law. ............. 17 1. The CLL Claim Is Barred by the Statute of Limitations. ........... 17 2. The CLL Does Not Apply to PACE Property Tax Assessments. ............................................................................... 18 3. A CLL Violation Is Not Plead Against Renovate America. ...... 19 B. Loya’s Claim For Violation of the UCL Should be Dismissed. ........... 19 1. The UCL Claim Is Not Well-Plead As To Renovate America. ...................................................................................... 19 Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 2 of 34 Page ID #:386 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ii 2. Loya Does Not Allege a Violation of the “Unlawful” Prong. .... 19 3. Loya Does Not Allege a Violation of the “Unfair” Prong. ........ 20 4. The “Unfair” Claim Fails for Additional Reasons. .................... 23 5. Loya Does Not Allege a Violation of the “Fraudulent Prong”. ........................................................................................ 24 III. The Complaint Should Be Dismissed Under Rule 12(b)(7). .......................... 25 CONCLUSION .......................................................................................................... 25 Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 3 of 34 Page ID #:387 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iii TABLE OF AUTHORITIES Page(s) Federal Cases Abel v. KeyBank USA, N.A., 2003 WL 26132935 (N.D. Ohio Sept. 24, 2003) .................................................... 16 Altman v. PNC Mortg., 850 F. Supp. 2d 1057 (E.D. Cal. 2012) ............................................................. 17, 18 Alvarez v. Chevron Corp., 656 F.3d 925 (9th Cir. 2011) ............................................................................. 23, 24 ANR Pipeline Co. v. Lafaver, 150 F.3d 1178 (10th Cir. 1998) ................................................................................. 8 Arizona v. Atchison, T. & S. F. R. Co., 656 F.2d 398 (9th Cir. 1981) ..................................................................................... 8 Baldwin v. Laurel Ford Lincoln-Mercury, Inc., 32 F. Supp. 2d 894 (S.D. Miss. 1998) ..................................................................... 11 Billings v. Propel Fin. Servs., L.L.C., 821 F.3d 608 (5th Cir. 2016) ............................................................................... 8, 12 Bond v. United States, 134 S. Ct. 2077 (2014) ............................................................................................... 8 Boris v. Wal-Mart Stores, Inc., 35 F. Supp. 3d 1163 (C.D. Cal. 2014) ..................................................................... 21 Cetto v. LaSalle Bank Nat’l Ass’n, 518 F.3d 263 (4th Cir. 2008) ................................................................................... 15 Charles v. Kraus Co., 572 F.2d 544 (5th Cir. 1978) ................................................................................... 11 County of Sonoma v. FHFA, 710 F.3d 987 (9th Cir. 2013) ................................................................................... 18 In re Currency Conversion Fee Antitrust Litig., 265 F. Supp. 2d 385 (S.D.N.Y. 2003) ..................................................................... 16 Davis v. HSBC Bank Nevada N.A., 691 F.3d 1152 (9th Cir. 2012) ................................................................................. 24 In re Dawson, 411 B.R. 1 (Bankr. D.D.C. 2008) ............................................................................ 15 DeLeon v. Wells Fargo Bank, N.A., 729 F. Supp. 2d 1119 (N.D. Cal. 2010) ................................................................... 17 Ford Motor Credit Co. v. Milhollin, 444 U.S. 555 (1980)............................................................................................... 7, 8 Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 4 of 34 Page ID #:388 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 iv Freeman v. DirecTV, Inc., 457 F.3d 1001 (9th Cir. 2006) ................................................................................. 16 Golden v. Sound Impatient Phys. Medical Grp., Inc., 93 F. Supp. 3d 1171 (E.D. Cal. 2015) ..................................................................... 20 Grady v. FDIC, 2014 WL 1364932 (D. Ariz. Mar. 26, 2014) ........................................................... 16 Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114 (9th Cir. 2009) ............................................................................. 7, 24 Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232 (2004)............................................................................................. 7, 10 INS v. St. Cyr, 533 U.S. 289 (2001)................................................................................................. 12 Johnson v. Wells Fargo Home Mortg., Inc., 635 F.3d 401 (9th Cir. 2011) ..................................................................................... 7 Jordan v. Paul Fin., LLC, 745 F. Supp. 2d 1084 (N.D. Cal. 2010) ................................................................... 20 Kearns v. Ford Motor Co., 567 F.3d 1120 (9th Cir. 2009) ........................................................................... 24, 25 Kohl v. Am. Home Shield Corp., 2011 WL 3739506 (S.D. Cal. Aug. 24, 2011) ......................................................... 20 Maynard v. Wells Fargo Bank, N.A., 2012 WL 4898021 (S.D. Cal. Oct. 15, 2012) .......................................................... 25 Nat’l Rural Telecomms. Co-op. v. DirecTV, Inc., 319 F. Supp. 2d 1059 (C.D. Cal. 2003) ................................................................... 20 In re New Investments, Inc, 840 F.3d 1137 (9th Cir. 2016) ................................................................................. 11 Obeng-Amponsah v. Fin. Am., LLC, 2009 WL 10646147 (C.D. Cal. Dec. 21, 2009) ....................................................... 14 Olivera v. Am. Home Mortg. Servicing, Inc., 689 F. Supp. 2d 1218 (N.D. Cal. 2010) ..................................................................... 7 Oregon Laborers-Emp’rs Health & Welfare Trust Fund v. Philip Morris Inc., 185 F.3d 957 (9th Cir. 1999) ................................................................................... 15 Pfennig v. Household Credit Services, Inc., 295 F.3d 522 (6th Cir. 2002) ............................................................................. 10, 20 Reagen v. Aurora Loan Servs., Inc., 2009 WL 3789997 (E.D. Cal. Nov. 10, 2009) .......................................................... 7 Slipak v. Bank of Am., N.A., 2011 WL 5526445 (E.D. Cal. Nov. 14, 2011) ........................................................ 17 Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 5 of 34 Page ID #:389 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 v Valdez v. Am.’s Wholesale Lender, 2009 WL 5114305 (N.D. Cal. Dec. 18, 2009) ....................................................... 10 Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 (9th Cir. 2003) ........................................................................... 24, 25 Viernes v. Exec. Mortg., Inc., 372 F. Supp. 2d 576 (D. Haw. 2004) ....................................................................... 15 Weiner v. Bank of King of Prussia, 358 F. Supp. 684 (E.D. Pa. 1973) ............................................................................ 16 Wilson v. Bel Fury Inv. Group, LLC, 2006 WL 297440 (D. Neb. Feb. 6, 2006) ................................................................ 15 Zenith Radio Corp. v. United States, 437 U.S. 443 (1978)................................................................................................... 7 California Cases Alliance Mortg. Co. v. Rothwell, 10 Cal. 4th 1226 (1995) ........................................................................................... 13 Aviel v. Ng, 161 Cal. App. 4th 809 (2008) .................................................................................. 18 Bank of Italy v. Bentley, 217 Cal. 644 (1933) ................................................................................................. 18 Beach v. Von Detten, 139 Cal. 462 (1903) ................................................................................................. 12 Byars v. SCME Mortg. Bankers, Inc., 109 Cal. App. 4th 1134 (2003) ................................................................................ 24 Cel-Tech Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163 (1999) ................................................................................. 20, 21, 23 City of Huntington Beach v. Super. Ct., 78 Cal. App. 3d 333 (1978) ..................................................................................... 12 Samura v. Kaiser Found. Health Plan, 17 Cal. App. 4th 1284 (1993) .................................................................................. 21 Shvarts v. Budget Grp., 81 Cal. App. 4th 1153 (2000) .................................................................................. 23 In re Tobacco II Cases, 46 Cal. 4th 298 (2009) ............................................................................................. 24 In re WRCOG Energy Efficiency & Water Conservation Program, No. RIC 1103280 (Cal. Sup. Ct. Riverside Cnty. Jul. 1, 2011) ................................ 7 Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 6 of 34 Page ID #:390 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 vi Federal Statutes 12 U.S.C. § 5512 ............................................................................................................. 7 15 U.S.C. § 1602 .................................................................................................... passim 15 U.S.C. § 1604 ......................................................................................................... 6, 7 15 U.S.C. § 1612 ............................................................................................................. 9 15 U.S.C. § 1638 ........................................................................................................... 20 15 U.S.C. § 1639 ............................................................................................. 6, 9, 16, 17 15 U.S.C. § 1640 .................................................................................................... passim Pub. L. No. 111-203, 124 Stat. 2107 (2010) .................................................................. 6 California Statutes Bus. & Prof. Code, §§ 17200 et seq. .............................................................................. 2 Bus. & Prof. Code § 17203 ..................................................................................... 19, 20 Civ. Code § 1788.2 ....................................................................................................... 12 Code Civ. Proc. § 340 ................................................................................................... 17 Fin. Code § 4970 ..................................................................................................... 18, 19 Gov’t Code §§ 53311 et seq. ........................................................................................ 10 Rev. & Tax. Code §§ 2617-18 ...................................................................................... 10 Sts. & High. Code § 5101 ............................................................................................... 9 Sts. & High. Code § 5898.12 ........................................................................................ 11 Sts. & High. Code § 5898.28 ............................................................................ 10, 22, 23 Sts. & Hwy. Code § 5898.30 ...................................................................... 11, 13, 18, 23 Sts. & High. Code § 8650 ............................................................................................. 23 Sts. & High. Code § 8651.5 ...................................................................................... 9, 10 Sts. & High. Code § 8680-81 ........................................................................................ 23 Sts. & High. Code § 8700 ............................................................................................. 23 Sts. & High. Code § 8701 ............................................................................................. 13 Sts. & Hwy. Code § 10100 ............................................................................................. 9 Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 7 of 34 Page ID #:391 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 vii Rules Fed. R. Civ. P. 9(b) ....................................................................................................... 24 Fed. R. Civ. P. 12(b)(7) ............................................................................................ 2, 25 Fed. R. Civ. P. 19 .......................................................................................................... 25 Regulations 12 C.F.R. § 1026.1 .......................................................................................................... 6 12 C.F.R. § 1026.2 ............................................................................................ 12, 13, 15 12 C.F.R. § 1026.36 ...................................................................................................... 17 12 C.F.R. Pt. 1026 cmt. 32(d)(8)(iii) .............................................................................. 9 12 C.F.R. Pt. 1026, Supp. I, cmt. 2(a)(14)-1(ii) ......................................................... 2, 6 75 Fed. Reg. 57,252 (Sept. 20, 2010) ............................................................................. 7 Other Authorities City of Newport Beach, Underground Utilities Assessment Districts: A Step-by-Step Guide .................................................................................................... 9 Letter from California Congressional Delegation to California State Assembly Members (June 8, 2016), http://alcl.assembly.ca.gov/sites/ alcl.assembly.ca.gov/files/Congressional%20PACE%20Letter.pdf ......................... 3 Webster’s Third New International Dictionary 769 (1986) ......................................... 13 Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 8 of 34 Page ID #:392 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 In 2008, the California Legislature was the first in a growing tide of states to establish a Property Assessed Clean Energy (“PACE”) program, a property tax assessment program that allows homeowners to enter into individual property tax assessment contracts with participating government entities to pay for, inter alia, energy- and water-efficient home improvements. PACE is a landmark program, lauded by the State of California and the outgoing Obama Administration, among many others, because it empowers communities to use the local tax assessment and municipal bonding process to fund environmentally-important improvements to local homes. The program has now given tens of thousands of California homeowners the benefit of decreased utility costs, and hundreds of California communities the benefits of saved energy and water use. In 2014, George Loya (“Loya”) requested a PACE tax assessment contract to remodel the exterior of his home with energy-efficient windows and doors. The work was completed, to his evident satisfaction, over two years ago, and Western Riverside Council of Governments (“WRCOG”) agreed to and did fund it by levying an assessment against the home through its PACE program. But now Loya has sued WRCOG, claiming the tax assessment was a “consumer credit transaction,” and its terms either did not comply with, or were not disclosed as required by the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. (“TILA”); and a subpart of TILA, the Home Ownership and Equity Protection Act, 15 U.S.C. § 1639 (“HOEPA”).1 In addition to suing WRCOG, Loya alleges that Renovate America, Inc. (“Renovate America,” and collectively with WRCOG, “Defendants”) helps administer WRCOG’s PACE program—implemented as the Home Energy Renovation Opportunity (“HERO”) Program—and is therefore liable for those statutory violations; a violation of California’s mini-HOEPA statute, the Covered Loan Law, Cal. Fin. Code §§ 4970 et 1 Loya’s counsel has also filed two related actions, both pending before this Court with staggered motion to dismiss briefing schedules: Ramos v. San Bernardino Associated Governments, et al., No. 5:16-cv-02491-AB-KK and Richardson v. Los Angeles County, et al., No. 2:16-cv-08943-AB-KK. Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 9 of 34 Page ID #:393 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 seq. (“CLL”); and various derivative violations of the Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200 et seq. (“UCL”). Relatedly, under the UCL, Loya challenges various contractual aspects of the assessment. These claims are all legally defective, and the complaint should be dismissed with prejudice. Loya’s claims rest entirely on the fallacy that the property tax assessment was a “consumer credit transaction.” This is wrong. The Consumer Financial Protection Bureau (“CFPB”), the federal regulator tasked with interpreting both TILA and its subpart, HOEPA, has adopted authoritative definitions establishing that “[t]ax liens” and “tax assessments” “are not considered credit” for purposes of those laws. 12 C.F.R. Pt. 1026, Supp. I, cmt. 2(a)(14)-1(ii). Moreover, even without that clear mandate, WRCOG did not extend “consumer credit” to Loya because, among other reasons, the tax assessment was against the property, not Loya personally, and there was no corresponding promissory note or other personal obligation on Loya to repay it. As WRCOG notes in its separate brief, other federal regulators, the Chairman of the Federal Reserve, and even advocates who have criticized the PACE program (for unrelated reasons) all agree that these lending laws are not implicated by PACE.2 Even if the CFPB’s statutory interpretation were incorrect (which it is not), the federal claims must still be dismissed under TILA’s and HOEPA’s exemption for liability because the Defendants relied in good faith on an existing statutory interpretation. See 15 U.S.C. § 1640(f). Loya’s federal claims suffer from other fatal defects, and his state claims fail for related and independent reasons. In addition, Loya’s decision not to join the co- owner of the subject property, an obvious necessary party, is improper and requires dismissal under Fed. R. Civ. P. 12(b)(7). All of the insufficiencies of the claims are discussed below, and in the companion motion to dismiss filed today by WRCOG. BACKGROUND WRCOG’s brief in support of its motion to dismiss provides to the Court, on 2 See Mem. In Support Of Motion of WRCOG to Dismiss Compl. Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 10 of 34 Page ID #:394 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 behalf of both Defendants, important background on the PACE tax assessment program that is central to Loya’s claims. The description, which Renovate America adopts, discusses how the State of California authorized PACE so as to empower local governments to use the property tax assessment system to assist homeowners in paying for the costs of energy-efficient improvements. The program serves the vital public policy goals of protecting local environments by reducing energy and water use. Over 70,000 Californians have participated in this innovative program, saving themselves and the public billions—“9.1 billion kWh of energy, 3.4 billion gallons of water, and $2.5 billion in homeowners’ utility bills.”3 It achieves those savings by using a voluntary tax assessment against the home to pay for the improvements, by agreement of the owner after robust disclosures and only after the contractor’s home improvements are performed and after the owner agrees the work is complete. Loya’s PACE Assessment Contract and His Legal Claims4 In 2014, Loya, who lives at 22470 Climbing Rose Dr., in Moreno Valley (“Climbing Rose Property”), became one of those 70,000 who took advantage of the opportunity to improve the energy efficiency of their home through the PACE program. After obtaining a quote of $13,566 from a licensed contractor, Vinyl Window Broker, Inc., for upgraded exterior windows and doors, Compl. ¶¶ 55-57; see WRCOG’s Request for Judicial Notice (“RJN”), Exs. 2 & 3 (Assessment Contract & Contractor Attachment Invoice)5), on June 26, 2014, Loya submitted an application to fund the improvements through tax assessments using WRCOG’s HERO Program. Compl. ¶ 58; see also RJN, Ex. 1 (Application). Loya’s Application described in detail the HERO Program’s qualification requirements and assessment terms, as well 3 See Letter from California Congressional Delegation to California State Assembly Members (June 8, 2016), http://alcl.assembly.ca.gov/sites/alcl.assembly.ca.gov/files/ Congressional%20PACE%20Letter.pdf. 4 Renovate America does not admit the truth of any of Loya’s allegations and Renovate America in all respects denies his legal claims for relief. 5 The Complaint references, and entirely relies on, Loya’s HERO assessment contract documents without attaching them. They are subject to WRCOG’s RJN. Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 11 of 34 Page ID #:395 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 as, inter alia, requirements concerning his credit history, prior tax and mortgage payment history, the Climbing Rose property’s value, and the amount of equity he had in the property. RJN, Ex. 1, p. 1. The Application form also fully disclosed to Loya, in standard type and easily-understandable language, the details regarding how repayment would work through the tax assessment process, including the applicable interest and fees. Id. pp. 2-3. The Application form also explained that the assessment would be a lien on the property, senior to all past and future private liens, including mortgages and deeds of trust. Id. p. 1. Loya signed a “WRCOG HERO Program Assessment Contract” (“Assessment Contract”), which, like the Application, also described the details of the HERO Program and the tax assessment repayment process. Compl. ¶ 59; RJN, Ex. 2, (Assessment Contract).6 The Assessment Contract contained an Exhibit listing the desired home improvements to the Climbing Rose Property and another Exhibit providing specific details on the Assessment Contract’s financial terms, including the maximum disbursement amount, the interest rate, the interest accruing before Loya’s first payment, the estimated Annual Percentage Rate, a complete annual repayment schedule by tax year, and the total administrative, recording, and annual assessment fees. RJN, Ex. 2, (Assessment Contract, Exhibits A & B). WRCOG accepted and counter-signed the Assessment Contract on June 27, 2014. Id.; Compl. ¶ 70. The work commenced immediately and, on July 22, 2014, Loya executed a completion certificate, acknowledging that all of the improvements to his home had been completed; this allowed his contractor to receive payment in full from the HERO Program. Compl. ¶ 71; RJN, Ex. 4. On July 25, 2014, Loya received a “HERO Final Payment Summary,” which detailed the improvements, the total project cost, the total amount financed for the project, and the repayment schedule. RJN, Ex. 5. After the 6 Loya also received at least three other disclosures on June 26, 2014, each of which further disclosed details of the HERO program and the funding and assessment process, including Loya’s right to cancel within three (3) business days of signing the Assessment Contract. RJN, Exs. 6-8. Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 12 of 34 Page ID #:396 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 contractor was paid on Loya’s behalf, on July 29, 2014, WRCOG recorded a Notice of Assessment against the Climbing Rose Property, in the principal amount of $16,359.95—which included the contract amount and certain interest and costs. Compl. ¶¶ 73-74. Under the assessment, the sum of about $1,000 would come due twice a year, at the time the taxes also came due. RJN, Ex. 9. Nearly two years later, after the entire assessment had been paid off when he refinanced, Loya filed this lawsuit. Loya does not allege that the work was not done, or that it had been shoddy, or that he did not get the resultant energy-efficiency benefits he had sought. Instead, Loya contends that Renovate America and WRCOG violated TILA and HOEPA, and that Renovate America also violated the CLL and UCL, chiefly for failure to comply with particular disclosure rules and substantive restrictions under those statutes. Additionally, and only against Renovate America, Loya complains the assessment involved the imposition and collection of “secret” or excessive interest, costs and administrative fees; imposition and collection of unlawful prepayment penalties; and failure to timely credit payments. See, e.g., Compl. ¶ 4. Loya asserts three causes of action against both WRCOG and Renovate America: for violations of TILA (Counts One and Four), and HOEPA (Count Two), and for conspiracy to violate both laws (Count Three). Loya alleges two additional claims against Renovate America only: violations of the CLL (Count Five) and violations of the UCL (Count Six). ARGUMENT I. THE TILA AND HOEPA COUNTS MUST BE DISMISSED. A. PACE ASSESSMENTS ARE NOT REGULATED BY TILA OR HOEPA. In Counts One, Three, and Four, Loya invokes TILA provisions that each apply only to “residential mortgage loans.”7 That phrase is defined in TILA as “any consumer credit transaction that is secured by a mortgage, deed of trust, or other equivalent consensual security interest.” 15 U.S.C. § 1602(cc)(5) (emphasis added). 7 See Compl. ¶¶ 149-56, 187, 200-02 (citing 15 U.S.C. §§ 1639c(a), 1639c(c), 1639c(e), and 1639b(c)). Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 13 of 34 Page ID #:397 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 For Counts Two and Three, Loya invokes HOEPA § 1639, which only applies to “high-cost mortgages” and that term is similarly restricted to “consumer credit transactions.” See Compl. ¶ 168; 15 U.S.C. § 1602(bb).8 In turn, for all relevant purposes, “credit” is defined as a “right granted by a creditor to a debtor to defer payment of debt,” and “consumer” is a “natural person” “to whom credit is offered or extended.” 15 U.S.C. § 1602(f), (i). Applying these defined terms spells the end of Loya’s federal causes of action. 1. PACE Assessments Are Not “Credit.” The first dispositive shortcoming is that PACE assessment transactions do not qualify as “credit” under TILA, and thus the Climbing Rose Property assessment was not a “consumer credit transaction” under either TILA or HOEPA. a. The Regulations and Official Staff Interpretation of TILA and HOEPA Exclude Tax Assessments from “Credit.” Congress has delegated to CFPB extensive authority to administer TILA and interpret its provisions, including determining whether the statute’s requirements apply to “all or any class of transactions, as in the judgment of the Bureau [is] necessary or proper to effectuate the purposes of this subchapter.” 15 U.S.C. § 1604(a). Exercising this broad authority, the CFPB has issued a regulatory definition unequivocally stating that “[t]ax liens” and “tax assessments” “are not considered credit for purposes of the regulation.” 12 C.F.R. Pt. 1026 Supp. I, cmt. 2(a)(14)-1(ii). This interpretation is dispositive under administrative deference principles that the Supreme Court and Ninth Circuit have recognized are particularly applicable to interpretations of TILA. The U.S. Supreme Court has long recognized that “[w]hen faced with a problem of statutory construction, this Court shows great deference to the 8 Unless otherwise overridden, TILA’s terms, definitions, and restrictions all apply to HOEPA too. 15 U.S.C. § 1602(a). And, the CFPB has confirmed that TILA and HOEPA both only apply to transactions involving “credit.” 12 C.F.R. § 1026.1(c). Additionally, though the text of § 1639(a)(1) states that it applies to mortgages “referred to in section 1602(aa),” this is a drafting error due to the July 21, 2010 amendments, which moved the definition of high cost mortgages from § 1602(aa) to § 1602(bb). See Pub. L. No. 111-203, 124 Stat. 2107 (2010). Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 14 of 34 Page ID #:398 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 interpretation given the statute by the officers or agency charged with its administration.” Zenith Radio Corp. v. United States, 437 U.S. 443, 450 (1978). With respect to TILA, Congress has given the CFPB unusually broad authority, including the ability to interpret the statute as not applying to “all or any class of transactions.” 15 U.S.C. § 1604(a). Applying TILA in particular, the Supreme Court has adopted a high deference standard: “[u]nless demonstrably irrational, . . . staff opinions construing [TILA] or Regulation [Z] should be dispositive.” Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565-66 (1980). This is because “‘Congress has specifically designated the [Federal Reserve Board] as the primary source for interpretation and application of truth-in-lending law.’” Household Credit Servs., Inc. v. Pfennig, 541 U.S. 232, 238 (2004) (quoting, Ford, 444 U.S. at 566). See also Ford, 444 U.S. at 565 (TILA “deference is especially appropriate.”). That designation and deference remain equally applicable to the current TILA regulator, the CFPB.9 The Ninth Circuit has put a finer point on it: lower courts must follow official TILA staff interpretations where they are “directly applicable.” Johnson v. Wells Fargo Home Mortg., Inc., 635 F.3d 401, 417-18 (9th Cir. 2011) (“[W]e find the staff interpretations dispositive. One part of the Commentary is directly applicable . . . .”).10 Here, PACE property tax assessments such as Loya’s clearly qualify as “tax assessments” under California law.11 Loya’s PACE assessment therefore does not 9 The Dodd-Frank Wall Street Reform and Consumer Protection Act shifted rulemaking and interpretive authority under TILA to the CFPB from the Federal Reserve Board, effective July 21, 2011. 12 U.S.C. § 5512; 75 Fed. Reg. 57,252 (Sept. 20, 2010). 10 See also, Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114, 1118 (9th Cir. 2009) (“Courts must defer to the decisions of the [TILA regulator]”); Olivera v. Am. Home Mortg. Servicing, Inc., 689 F. Supp. 2d 1218, 1221 (N.D. Cal. 2010) (same); see also Reagen v. Aurora Loan Servs., Inc., 2009 WL 3789997, at *6 (E.D. Cal. Nov. 10, 2009) (same). 11 Indeed, there have also been bond validation proceedings in which California state courts have determined that the bonds are valid and that these transactions are tax assessments. See, e.g., Validation Judgment at 4, Western Riverside Council of Governments v. All Persons Interested in In re WRCOG Energy Efficiency & Water Conservation Program, No. RIC 1103280 (Cal. Sup. Ct. Riverside Cnty. Jul. 1, 2011). Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 15 of 34 Page ID #:399 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 8 constitute “credit” under TILA or HOEPA due to the “dispositive” and “directly applicable” TILA Commentary. This is an obvious result, which other courts have endorsed. See Billings v. Propel Fin. Servs., L.L.C., 821 F.3d 608, 611 (5th Cir. 2016) (“It is undisputed that tax obligations (and the tax liens resulting therefrom) imposed by a taxing authority are not ‘debt’ for purposes of TILA . . . .”). Loya’s claims in Counts One, Two, Three and Four therefore fail as a matter of law. b. The Staff Interpretation Is Not “Demonstrably Irrational”— It Is Irrational To Presume Congress Would Silently Infringe on the State Property Tax Assessment Process. Given the special deference the Supreme Court has directed courts to give to the CFPB’s interpretations of TILA, to overcome the CFPB’s interpretation, Loya would have to show the interpretation was “demonstrably irrational.” Ford, 444 U.S. at 565. That is certainly not the case here, as the CFPB’s conclusion is the most rational one given the statute and the surrounding circumstances. If Congress had intended through TILA to intrude on a traditional state function, like property tax assessments, it would have done so explicitly. The Supreme Court has recognized the “well-established principle that ‘it is incumbent upon federal courts to be certain of Congress’ intent before finding that federal law overrides’ the ‘usual constitutional balance of federal and state powers.’” Bond v. United States, 134 S. Ct. 2077, 2089 (2014) (quoting Gregory v. Ashcroft, 501 U.S. 452, 460 (1991)). This canon applies when one interpretation would touch upon “areas of traditional state responsibility.” Id. Those areas certainly include the administration of the property tax and assessment systems in California. Arizona v. Atchison, T. & S. F. R. Co., 656 F.2d 398, 408 (9th Cir. 1981) (property taxes are “an integral part of a state’s governmental activities”); accord ANR Pipeline Co. v. Lafaver, 150 F.3d 1178, 1193 (10th Cir. 1998) (“a state’s interests in the integrity of its property tax system lie at the core of the state’s sovereignty”). Here, there is no indication either in the text of TILA or in its legislative history that Congress intended Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 16 of 34 Page ID #:400 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 to include property tax assessments as “consumer credit transactions.” See generally Legislative History of the Consumer Credit Protection Act, Pub. L. No. 90-321, 82 Stat. 146 (1968). Indeed, the only indication that could be found in the law is to the contrary, in that Congress expressly exempted local governments from any civil TILA liability. 15 U.S.C. § 1612(b); see also 15 U.S.C. § 1639c(a)(1) (recognizing difference between a “loan,” on the one hand, and “taxes” and “assessments,” on the other hand); 12 C.F.R. Pt. 1026 cmt. 32(d)(8)(iii) (same). Yet Loya’s suit would intrude on the tax assessment laws and procedures in all of California. Loya would have this Court overlay a large variety of substantive and procedural requirements of TILA and HOEPA on how WRCOG—and the rest of the State—participate in the PACE program and, indeed, otherwise use tax assessments in the public interest. There is nothing unusual about a property owner requesting government financed improvements that result in a special tax or property assessment.12 Under Plaintiff’s TILA theory, in all such instances, governmental bodies might be treated as lenders, and interest and payment requirements applicable to loans potentially could conflict with or even override well-established requirements and protections applicable to local taxes and tax collection systems; civil and criminal remedies in lending laws also would suddenly be potentially-available. Any of these developments would pose substantial restrictions on the exercise of a local government’s sovereign powers. For example, Loya claims that his Assessment Contract contains unlawful prepayment penalties, and he presumably seeks to prohibit them. Compl. ¶¶ 136, 153. The “prepayment penalties” Loya complains of, however, are due to the way California finances public improvements—like PACE improvements—through the issuance of bonds, which are subject to a premium if redeemed early under California’s 100-year old Bond Act. Cal. Sts. & High. Code 12 Examples of such property owner-requested assessments include neighborhood improvements (Cal. Sts. & High. Code § 5101(b)) and placing electric utilities underground (Id. § 10100). See also, e.g., City of Newport Beach, Underground Utilities Assessment Districts: A Step-by-Step Guide (“Most underground utility assessment districts are formed at the request of the local property owners.”). Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 17 of 34 Page ID #:401 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10 § 8651.5.13 Further, Loya also alleges that the Defendants violated HOEPA because the assessment contract imposed a “late payment charge” of 10%, in excess of the 4% allowed under HOEPA. Compl. ¶¶ 178-79. But the 10% “late payment charge” Loya attacks is the generally-applicable penalty assessed against all delinquent property taxes in California. See Cal. Rev. & Tax. Code §§ 2617-18.14 The CFPB’s unequivocal determination that local assessments fall outside of TILA’s (and HOEPA’s) ambit makes good sense, and avoids these unintended and dangerous implications. It certainly is not irrational. c. The Staff Interpretation Creates a Good Faith Defense. Even if this Court were to conclude that the CFPB’s official staff interpretation is not directly dispositive, it should still dismiss Loya’s TILA and HOEPA causes of action. In authorizing private causes of action under these laws, Congress included a safe harbor provision that exempts a defendant from liability for “any act done or omitted in good faith in conformity with any rule, regulation, or interpretation thereof.” 15 U.S.C. § 1640(f). This defense applies in full to Staff Commentary. See Valdez v. Am.’s Wholesale Lender, 2009 WL 5114305, at *3 (N.D. Cal. Dec. 18, 2009). Here, because the Commentary on its face exempts tax assessments from the ambit of TILA and HOEPA, Defendants are entitled to the absolute safe harbor defense accorded under Section 1640(f). See, e.g., Pfennig v. Household Credit Services, Inc., 295 F.3d 522, 532-33 (6th Cir. 2002), rev’d on other grounds, 541 U.S. 232 (2004) (applying Section 1640(f) defense as a matter of law where Regulation Z 13 The complained-of “prepayment penalty” matches exactly with the statutory requirements for bonds that are redeemed early. Compare Compl. ¶ 69 (alleging the “prepayment penalty” was 5% in first year and declined over time), with Cal. Sts. & High. Code § 8651.5 (mandating 5% bond “redemption premium” and authority to reduce premium over time); Cal. Sts. & High. Code § 5898.28(d) (authorizing PACE redemption premium). 14 The ramifications of Loya’s approach could reach even further, far beyond PACE assessments. If the requirements of TILA and HOEPA were imposed in the way that Loya suggests, they could also apply to all publicly-financed improvements, like streets, sewer systems, and other basic infrastructure, as well as schools, parks, and libraries, financed through special assessments levied in accordance with the Mello- Roos Community Facilities Act of 1982 (the “Mello-Roos Act”), Cal. Gov’t Code §§ 53311 et seq. Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 18 of 34 Page ID #:402 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 11 plainly excluded the subject charge from disclosure rules); Charles v. Kraus Co., 572 F.2d 544, 549 (5th Cir. 1978) (affirming judgment for creditor because of good-faith defense under TILA section 1640(f)); Baldwin v. Laurel Ford Lincoln-Mercury, Inc., 32 F. Supp. 2d 894, 906 (S.D. Miss. 1998) (same; official staff interpretation). 2. PACE Assessments Are Not “Consumer Credit.” For PACE tax assessments to qualify as “consumer credit transactions” they must be considered not only “credit,” but “consumer credit.” But that interpretation is also foreclosed by the statutory definitions. For a transaction to involve consumer “credit” under TILA, it must “defer payment of a debt” to “a creditor from a debtor.” 15 U.S.C. § 1602(f). In turn, a debtor must be a “consumer”—a “natural person” to whom credit is extended. Id. § 1602(i). But there is no personal “debt” here owed by a “natural person.” Like all property tax assessments, PACE property tax assessments are obligations imposed on the property—not the property owner—and are collected “in the same manner and at the same time as the general taxes of the city or county on real property.” See Cal. Sts. & High. Code §§ 5898.12, 5898.30. Although any property could be subject to a tax foreclosure for non-payment of taxes, for PACE assessments, there is no personal right of recourse against the property owner, which Loya’s own Assessment Contract makes clear. Instead, a PACE assessment runs with the land itself, not with the landowner. See, e.g., RJN, Ex. 2 (Assessment Contract, § 6); Compl. ¶¶ 15, 30, 149, 172. Further, default on a PACE assessment does not allow the local government to accelerate the entire assessment amount owed, unlike acceleration terms applicable to traditional “debts.” Compare Cal. Sts. & High. Code § 5898.30, with In re New Investments, Inc, 840 F.3d 1137, 1138 (9th Cir. 2016). Under the plain application of TILA’s express provisions (which definitions apply to HOEPA as well), PACE tax assessments do not qualify as “consumer credit.”15 15 When a PACE assessment is recorded it becomes part of the property tax levy and collection system. In California, homeowners must pay their entire property tax bill; they cannot selectively pay line items. Failure to pay the property tax bills in their entirety exposes homeowners to the traditional property tax enforcement process, but Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 19 of 34 Page ID #:403 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 The conclusion is bolstered further by Congress’ choice to define “credit” as the deferring of payment of a “debt.” Because “debt” is not defined in TILA, California state law governs the definition of the term. 12 C.F.R. § 1026.2(b)(3) (“Unless defined . . . words used [in TILA] have the meanings given to them by state law or contract”); see also Billings, 821 F.3d at 610. California law generally defines “debt” as money owed by a “natural person to another person.” See, e.g., Cal. Civ. Code § 1788.2(d). Notably in contrast, a tax assessment lien on a property does not constitute a personal debt owed by a consumer. City of Huntington Beach v. Super. Ct., 78 Cal. App. 3d 333, 340 (1978). The conclusion that PACE assessments are not “consumer credit” is also supported by the fact the California Constitution prohibits the California Legislature from authorizing local governments to offer loans or “credit” to any “person.” Cal. Const. art. XVI § 6. Since “it must be presumed that [the Legislature] has considered and discussed the constitutionality of all measures passed by it,” it is certainly appropriate to assume that the Legislature must have concluded that PACE property tax assessments do not constitute loans or “debt” to homeowners as a matter of California law. Beach v. Von Detten, 139 Cal. 462, 465 (1903); see also INS v. St. Cyr, 533 U.S. 289, 299-300 (2001) (courts are “obligated to construe the statute to avoid [constitutional] problems.”). 3. PACE Assessments Are Not “Residential Mortgage Loans.” Even if they could be “credit” or “consumer credit transactions,” PACE property tax assessments are still not subject to TILA or HOEPA because assessments are not within the narrower set of loans covered by the TILA and HOEPA sections at issue in Counts One-Four; those statutory sections only apply to a transaction “that is secured by a mortgage, deed of trust, or other equivalent consensual security interest.” 15 U.S.C. § 1602(cc)(5) (defining “residential mortgage loan”). WRCOG’s assessment on the Climbing Rose Property is not within this definition because Loya there is no independent basis to proceed on the PACE line item alone or to enforce the PACE assessment apart from the traditional property tax collection mechanism. Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 20 of 34 Page ID #:404 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 does not allege that it was secured by a mortgage, or a deed of trust, or by another “equivalent consensual security interest.” Id. (emphasis added). Rather, the tax assessment created a lien that arose as a matter of California law pursuant to the government’s taxation powers and effectuated by the Recorded Notice of Assessment made by WRCOG, which is used to enforce property taxes and assessments. Compl. ¶¶ 73-75. See Cal. Sts. & High. Code §§ 5898.30, 8701. Tax liens are not even similar to mortgages and deeds of trust, let alone equivalent. See Alliance Mortg. Co. v. Rothwell, 10 Cal. 4th 1226, 1235 (1995) (mortgages and deeds of trust are private, contractual instruments that secure repayment of a promissory note). See Webster’s Third New International Dictionary 769 (1986) (defining equivalent as “corresponding or virtually identical”). This conclusion is supported by Regulation Z, which defines a “security interest” as “an interest in property that secures performance of a consumer credit obligation and that is recognized by state or Federal law.” 12 C.F.R. § 1026.2(a)(25). But Regulation Z specifically excludes from that general definition “an interest that arises solely by operation of law.” Id.; see also id. Pt. 1026, Supp. I, cmt. 2(a)(25)-2. Since the tax assessment is not “secured by a consensual security interest” that is “equivalent” to a mortgage or deed of trust, Counts One-Four must be dismissed. B. RENOVATE AMERICA IS NOT A “CREDITOR” UNDER TILA OR HOEPA. As an independent ground for relief, this Court should also dismiss Loya’s TILA and HOEPA claims because liability under each set of provisions is expressly limited to creditors, and neither Renovate America nor WRCOG are a “creditor” under the laws. See 15 U.S.C. § 1640(a). The term creditor is defined as only: a person who both (1) regularly extends . . . consumer credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, and (2) is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 21 of 34 Page ID #:405 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 14 there is no such evidence of indebtedness, by agreement. Id. § 1602(g). For the reasons explained in Section I.A, PACE tax assessments are neither “credit” nor “consumer credit” and thus neither defendant is a “creditor” under this section. Further, Renovate America does not meet the second part of the “creditor” test, i.e. it was not the person to whom the alleged debt was payable. Instead, the Complaint admits that “WRCOG . . . is the person to whom the debt arising from the consumer credit is initially payable on the face of the evidence of indebtedness.” Compl. ¶ 141. Accordingly, Renovate America is entitled to dismissal. See Obeng-Amponsah v. Fin. Am., LLC, 2009 WL 10646147, at *4 (C.D. Cal. Dec. 21, 2009) (“Chase is not liable under TILA as a matter of law, as it is [not] the original creditor . . . . Therefore, Claim 7 cannot be brought against Chase.”). Loya nonetheless alleges that Renovate America is still a potentially-liable “creditor” because “each HERO Loan is a high-cost mortgage and Renovate America originated two or more HERO Loans in each 12-month period relevant hereto.” Compl. ¶ 145. This allegation seeks to create liability based on the last sentence of the same “creditor” definition, which provides: Any person who originates 2 or more mortgages referred to in subsection (aa) [HOEPA] of this section in any 12-month period or any person who originates 1 or more such mortgages through a mortgage broker shall be considered to be a creditor . . .. 15 U.S.C. § 1602(g). Loya apparently believes that this final sentence creates an alternative, standalone definition of “creditor,” separate from the two-part test specified in the beginning of § 1602(g), which by its terms sets out the “only” standard for “creditor.” This is wrong, as the CFPB and courts have recognized. The final sentence of § 1602(g), quoted above, only further defines what it means to “regularly extend credit.” This second sentence, in effect, lowers the bar for “regular” extension where HOEPA loans are concerned. But it does nothing to dilute the other necessary requirement that the creditor can only be the “person to whom the Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 22 of 34 Page ID #:406 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 debt arising from the transaction is initially payable.” CFPB regulations clarify any ambiguity on this point, explaining that the test quoted in the Complaint is nothing more than an alternative way to define what it means to regularly extend credit under the first part of the general “creditor” test. 12 C.F.R. § 1026.2(a)(17) (“A person regularly extends credit” if the quoted alternative frequency standard is met). The Commentary also confirms this reading. Id. Pt. 1026, Supp. I, cmt. 2(a)(17)(i)-1. Case law similarly has rejected the reading of “creditor” that Loya appears to rely on. E.g., Cetto v. LaSalle Bank Nat’l Ass’n, 518 F.3d 263, 267-72 (4th Cir. 2008) (“unambiguous statutory language of TILA and HOEPA” as well as Regulation Z made clear “that the last sentence of § 1602[g] explains the first prong of the ‘creditor’ definition in the first sentence.”); Viernes v. Exec. Mortg., Inc., 372 F. Supp. 2d 576, 582 (D. Haw. 2004) (agreeing that the last sentence in § 1602(g) “modifies the two part definition . . . , so that to be a ‘creditor,’ one must meet the two part test of (1) regularly extending consumer credit and (2) being the person to whom the obligation is initially payable.”); accord Wilson v. Bel Fury Inv. Group, LLC, 2006 WL 297440 (D. Neb. Feb. 6, 2006); In re Dawson, 411 B.R. 1, 38 n.43 (Bankr. D.D.C. 2008). The obligation to pay the Climbing Rose Assessment was never “initially payable” to Renovate America, so it was not a creditor and Counts One-Four fail. C. COUNT THREE ALSO FAILS BECAUSE THERE IS NO CAUSE OF ACTION FOR CONSPIRACY TO VIOLATE TILA OR HOEPA. Loya’s Count Three, for conspiracy to violate TILA and HOEPA, must be dismissed for two independent reasons. First, the underlying TILA and HOEPA claims on which it depends fail to state a claim, so Count Three also fails. See Oregon Laborers-Emp’rs Health & Welfare Trust Fund v. Philip Morris Inc., 185 F.3d 957, 969 (9th Cir. 1999) (where no underlying violation, there is no claim for conspiracy). Second, the claim also fails as against Renovate America because neither statute recognizes a conspiracy claim. Congress knows how to impose secondary liability under a statute if it wants to, and uses specific language when it wants to do Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 23 of 34 Page ID #:407 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 so; when there is no such language, the courts must conclude that secondary liability theories (like conspiracy) are not cognizable. Freeman v. DirecTV, Inc., 457 F.3d 1001, 1006 (9th Cir. 2006) (rejecting attempt to impose secondary liability under the Electronic Communications Privacy Act; citing Cent. Bank of Denver N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 177 (1994)). This rule precludes Loya’s attempt to sue Renovate America for secondary liability for civil conspiracy under TILA and HOEPA. Nothing in the text of TILA or HOEPA creates a cause of action for conspiracy. To the contrary, the statutes expressly limit the scope of potential defendants to a “creditor who fails to comply with any requirement imposed under this part.” 15 U.S.C. § 1640(a). And “[n]othing in either TILA’s text or legislative history supports a claim for aiding and abetting or conspiracy,” or any other form of secondary liability. Grady v. FDIC, 2014 WL 1364932, at *7 (D. Ariz. Mar. 26, 2014); see also, e.g., In re Currency Conversion Fee Antitrust Litig., 265 F. Supp. 2d 385, 431 (S.D.N.Y. 2003); Abel v. KeyBank USA, N.A., 2003 WL 26132935, at *14 (N.D. Ohio Sept. 24, 2003); Weiner v. Bank of King of Prussia, 358 F. Supp. 684, 692-94 (E.D. Pa. 1973). D. COUNT FOUR ALSO FAILS BECAUSE “STEERING” IS NOT PLEAD. Count Four, for violations of the TILA mortgage originator rules, also must be dismissed because it is based on a fundamental misunderstanding of the cited statutory provision. Loya alleges that “[p]ursuant to TILA § 1639b(c)(3), mortgage originators are prohibited from steering any consumer to a residential mortgage loan that the consumer lacks a reasonable ability to repay or has predatory characteristics,” and that Defendants allegedly are liable for having committed such “steering.” Compl. ¶¶ 200- 03. Even if this allegation were true—and it is not—because Defendants are not plead to have “steered” Loya, there is no legal basis for the claim. TILA Section 1639b(c) created a “prohibition on steering incentives,” by banning compensation that varies based on the terms of a loan. 15 U.S.C. § 1639b(c)(1). As part of the ban, the CFPB is given the authority—in subsection (3), Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 24 of 34 Page ID #:408 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17 the provision cited by Loya—to promulgate regulations and enact more particular prohibitions on this type of “steering.” 15 U.S.C. § 1639b(c)(3). And the CFPB has done so in Regulation Z, providing in relevant part that one cannot “steer” a customer to a transaction “based on the fact that the originator will receive greater compensation” for that transaction than in other available transactions, unless the steered-to transaction “is in the consumer’s interest.” 12 C.F.R. § 1026.36(e) (emphasis added). Steering would thus occur, for example, if a consumer qualified for alternative loans with different interest rates, and the loan originator directed the consumer towards the higher-rate loan for the sole purpose of obtaining a higher sales commission for himself. Id. Pt. 1026, Supp. I, cmt. 36(e)(1)-3. Understanding this context, it is plain that Loya’s Count Four fails on the law for two independent reasons. First, there is no cause of action under the sole cited provision (§ 1639b(c)(3)), it merely delegates to CFPB the duty to “prescribe regulations” on steering. Second, and equally fatal, TILA and Regulation Z nowhere prohibit “steering” in the abstract. Instead, they prohibit steering when implemented for the purpose of maximizing an originator’s compensation. Here, Loya does not allege any facts to fit within the restriction. See Compl. ¶¶ 196-203. Without these allegations, Count Four should be dismissed. II. THE STATE LAW CAUSES OF ACTION MUST BE DISMISSED. A. LOYA’S FIFTH CLAIM UNDER THE CLL FAILS AS A MATTER OF LAW. 1. The CLL Claim Is Barred by the Statute of Limitations. Even assuming the CLL applies here, Loya’s CLL cause of action fails because it is time-barred. Claims under the CLL are subject to a one-year statute of limitations period, which accrues upon consummation of the transaction. Cal. Code Civ. Proc. § 340. See Altman, 850 F. Supp. 2d at 1081-82 (holding that CLL claim was time- barred under Section 340, where claim arose out of loan origination, and it accrued at the loan’s consummation more than one year prior to filing); DeLeon v. Wells Fargo Bank, N.A., 729 F. Supp. 2d 1119, 1127-28 (N.D. Cal. 2010); Slipak v. Bank of Am., Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 25 of 34 Page ID #:409 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 18 N.A., 2011 WL 5526445, at *8 (E.D. Cal. Nov. 14, 2011). Loya alleges that he entered the Assessment Contract in June 2014. Compl. ¶ 59. Taking that as the relevant date, Loya’s CLL cause of action, filed more than two years later, is time- barred and should be dismissed without leave to amend. 2. The CLL Does Not Apply to PACE Property Tax Assessments. Apart from the time-bar, this claim fails for the more basic reason that the CLL does not even apply to PACE property tax assessments. The CLL regulates only “covered loans,” which the statute (Cal. Fin. Code § 4970(b)), defines as meeting each of three requirements: (1) it is a “consumer loan;” (2) it is a “mortgage or deed of trust” within the so-called conforming loan limit set by Fannie Mae;16 and (3) the price charged the consumer must exceed certain numerical thresholds, measured by either an interest rate test or upfront-cost test. See, e.g., Altman v. PNC Mortg., 850 F. Supp. 2d 1057, 1081 (E.D. Cal. 2012). Even if the first and third parts of the CLL test for coverage could be met, Loya’s PACE assessment transaction fails the second part of the statutory test—it did not involve a “mortgage or deed of trust.” While “mortgage” and “deed of trust” are not defined in the CLL, each is well understood as describing loans where the voluntarily-granted private security instrument is given by a debtor in real property, to back up the debtor’s personal repayment obligation contained in an associated promissory note. E.g., Bank of Italy v. Bentley, 217 Cal. 644 (1933); Aviel v. Ng, 161 Cal. App. 4th 809, 815-16 (2008). In contrast, participation in a PACE program for making energy-efficient improvements results in a tax assessment by the government against the improved property, with a statutory lien that is enforced through the property tax system and no associated personal liability on the property owner. Cal. Sts. & Hwy. Code § 5898.30. A PACE assessment lien even has priority over any mortgage or deed of trust or other private lien. See id.; County of Sonoma v. FHFA, 710 F.3d 987, 990 (9th Cir. 2013). Thus, 16 “Consumer loan” is, in relevant part, a “consumer credit transaction that is secured by real property located in [California] used [] as the principal dwelling of the consumer . . . .” Cal. Fin. Code § 4970(d). A conforming loan is, essentially, a loan that is not a jumbo loan, as set by the Federal Housing Finance Authority. Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 26 of 34 Page ID #:410 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 there is no basis to conclude that the Climbing Rose Property assessment was a “mortgage” or a “deed of trust,” and consequently no basis for the CLL claim. 3. A CLL Violation Is Not Plead Against Renovate America. Finally, even if the CLL did apply and did not contain a one year time-bar, Loya fails to plead sufficient facts to show that Renovate America is liable for alleged failure to comply with the statute. The CLL can apply only to those who “originate” the covered loan, a term defined as “to arrange, negotiate, or make a consumer loan.” Cal. Fin. Code § 4970(h). Eschewing any argument as to two-thirds of the test, Loya alleges that Renovate America qualifies as an originator only “because Renovate America arranged the HERO Loans.” Compl. ¶ 207. But putting aside the truth (which is contested) of that general statement about “HERO Loans,” there are no allegations at all that Renovate America arranged Loya’s transaction. Without more, there is no factual basis for the claim that Renovate America is liable under the CLL. B. LOYA’S CLAIM FOR VIOLATION OF THE UCL SHOULD BE DISMISSED. 1. The UCL Claim Is Not Well-Plead As To Renovate America. The Complaint’s UCL claim, against Renovate America only, rests solely on alleged inadequate disclosures at the closing of the transaction, charging Loya excessive amounts, and failing to apply payments timely. Compl. ¶¶ 231, 238. But Renovate America is not the right party to sue based on those allegations because it is not the “person who engages, has engaged, or proposes to engage in unfair competition.” Cal. Bus. & Prof. Code § 17203. Renovate America is not a party to the Assessment Contract; it is not the governmental body that made the disclosures and assessed the property; it is not alleged to have imposed the charges; and it is not the entity alleged to have credited Loya’s tax payments to the PACE assessment. Compl. ¶¶ 70, 87-112; RJN, Ex. 2. As Renovate America is not the “person” that engaged in the alleged misconduct, it cannot be liable under the UCL. 2. Loya Does Not Allege a Violation of the “Unlawful” Prong. UCL claims can be stated under one of three prongs of the statute, which Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 27 of 34 Page ID #:411 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 20 proscribes certain unlawful, unfair or deceptive acts and practices. Cal. Bus. & Prof. Code § 17203. To state a claim under the UCL’s “unlawful” prong, Loya must plead that Renovate America violated another statute. Nat’l Rural Telecomms. Co-op. v. DirecTV, Inc., 319 F. Supp. 2d 1059 (C.D. Cal. 2003). “Where a plaintiff cannot state a claim under the ‘borrowed’ law, [he] cannot state a UCL claim either.” Golden v. Sound Impatient Phys. Medical Grp., Inc., 93 F. Supp. 3d 1171, 1179 (E.D. Cal. 2015). Here, the predicate statutes Loya points to as having been violated are TILA, HOEPA and the CLL. Compl. ¶¶ 232-34. Since Loya has not stated a claim for violations of those statues, his UCL claim cannot rest on the “unlawful” prong. Loya does allege another predicate violation, in that one paragraph in his UCL count is devoted to a boilerplate recitation of alleged TILA disclosure violations that he does not sue about directly. Compl. ¶ 238, citing 15 U.S.C. § 1638(a) and (b)(2)(B). But the allegations add nothing, as these disclosure requirements do not apply to his PACE assessment for the same reasons discussed above with respect to TILA generally. Section 1638(a) applies only to consumer credit transactions (which do not include PACE tax assessments) and it mandates that certain disclosures be made by a creditor (which Renovate America is not). 15 U.S.C. § 1638(a). Further, the disclosure requirements of Section 1638(b)(2)(B) only apply to extensions of credit secured by a consumer’s dwelling (which a PACE assessment is not). Finally, these allegations also fail because a direct suit for Section 1638 violations would be barred by TILA’s one-year statute of limitations (see 15 U.S.C. § 1640(e)), and to the extent Loya seeks relief for those violations through the UCL, his claim is preempted by TILA. See Jordan v. Paul Fin., LLC, 745 F. Supp. 2d 1084, 1098 (N.D. Cal. 2010); see also Kohl v. Am. Home Shield Corp., 2011 WL 3739506, at *4 (S.D. Cal. Aug. 24, 2011). 3. Loya Does Not Allege a Violation of the “Unfair” Prong. Loya cannot rely on the “unfair” prong because he has failed to identify any legislatively declared public policy undermined by the alleged conduct. See Cel-Tech Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 28 of 34 Page ID #:412 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 21 Commc’ns, Inc. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999). This District, following Cel-Tech, “‘require[s] that the public policy which is a predicate to the action must be “tethered” to specific constitutional, statutory or regulatory provisions.’” Boris v. Wal-Mart Stores, Inc., 35 F. Supp. 3d 1163, 1171 (C.D. Cal. 2014) (quoting Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350, 1366 (2010)). To plead “unfairness,” then, Loya must call out a law or regulation that the supposed conduct frustrates, and plead how it does so, rather than simply complain that something happens that he thinks was not fair. The “unfair” prong of the UCL “does not give the courts a general license to review the fairness of contracts.” Samura v. Kaiser Found. Health Plan, 17 Cal. App. 4th 1284, 1299 n. 6 (1993). Loya points to two “constitutional, statutory or regulatory provisions” to support his unfair claim: (1) the alleged TILA, HOEPA and CLL violations discussed above, and (2) four particular actions of Defendants that he alleges were “substantially likely to mislead the public.” Compl. ¶¶ 231-34. The former cannot support such a claim because, as addressed above, those statutes do not apply to the Climbing Rose Property assessment and were not violated in any event. On the latter, Loya identifies the four “deceptive” acts as: (i) “secretly charging [] double interest”; (ii) “secretly charging [] double administrative fees;” (iii) “secretly failing to credit payments when made;” and (iv) “secretly overcharging recording fees.” Compl. ¶ 231. Initially— even if Loya plead allegations to support that Renovate America took these actions— this kind of general allegation of deception is insufficient because it is not “tethered to a constitutional or statutory provision or regulation.” Cel-Tech. 20 Cal. 4th at 185. Further, the alleged conduct (which Renovate America denies) cannot support the UCL cause of action in light of the cited documents themselves—for all four acts, Loya attempts to use the word “secret” to hide that these are all just grievances about the terms of his PACE Assessment Contract with WRCOG. But disliking a fully- disclosed contract term does not make that term unfair, nor could the UCL be invoked to review them. Samura, 17 Cal. App. 4th at 1299 n. 6. Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 29 of 34 Page ID #:413 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 22 “Double Interest.” Loya’s allegations about “double interest,” although confusingly worded, appear to be two separate complaints: (i) the start date for interest accruing was described differently between Loya’s Application and the Assessment Contract (Compl. ¶¶ 87-90; RJN, Exs. 1 & 2); and (ii) the Assessment Contract charged “interest on interest” (Compl. ¶ 94). As to the date discrepancy complaint, the allegation fails because Loya does not allege that the two dates were different in the case of the Climbing Rose Property assessment. He also does not explain how, if they were different, the result was that interest was charged for the longer period of time. Loya’s contention that he was deceptively charged “interest on interest” is equally baseless. The Application disclosed that accrued, i.e. unpaid, interest before Loya’s first payment would be added to the assessment amount and that interest would be charged on that total amount. RJN, Ex. 1 (“Interest Before First Payment”) & (“Interest Rate. You will be charged a fixed interest rate on your total financed amount.”) (emphasis added). Loya and his attorneys may dislike capitalized interest, but it is authorized by PACE legislation (see, e.g., Cal. Sts. & High. Code § 5898.28(a)), is standard in the municipal bond industry, and Loya elected to pay for his home improvements through the PACE program. There is nothing deceptive about disclosing and following a practice that is authorized by statute. “Double Administrative Fees.” Loya’s second contention—that there were “double administrative fees” charged—fails for the same reason: it is nothing more than a complaint that his administrative fee was part of the assessment amount, rather than separate from it, and that interest was charged on the entire amount. This, again, is contemplated by PACE legislation (see, e.g., Cal. Sts. & High. Code § 5898.28(a) (bond proceeds to be used to “fund the administrative fee”)) and was disclosed in his Assessment Contract. See, e.g. RJN, Ex. 1 (Application) (“Program Administration Fee. [. . .] This fee will be added to the assessment amount.”). Crediting of Payments. Loya complains that the HERO program was Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 30 of 34 Page ID #:414 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 23 deceptive because he made payments on the Climbing Rose Property assessment that were not immediately credited. As an initial matter, Loya’s theory that this was “deceptive” is unsupported, as Loya points to nothing where he was told something to the contrary about how his tax payments would be applied. His critique about the crediting of payments is also contrary to law, and, in particular, the way tax assessments and bonds work under California’s 1911 Improvement Act and 1915 Bond Act. In accordance with these Acts, PACE payments are credited twice a year, on March 2 and September 2, as that is the only way to pay bondholders. See Cal. Sts. & High. Code §§ 5898.28(c), 5898.30, 8650, 8680-81. Any funds received through the taxing process earlier than one of those payment dates are held in trust and credited to bondholders when permitted. Cal. Sts. & High. Code § 8700. Performing an act in accordance with a state statute cannot be considered unfair. Shvarts v. Budget Grp., 81 Cal. App. 4th 1153, 1158-60 (2000); Alvarez v. Chevron Corp., 656 F.3d 925, 933-34 (9th Cir. 2011). “Overcharging Recording Fees.” Finally, Loya’s complaint that it was deceptive to charge $95.00 for recording fees is baseless, as Loya admits that the Application explicitly disclosed that a recording fee of “approximately $95” would be charged and added to the assessment amount and he does not allege anything different was said. Compl. ¶ 106; RJN, Ex. 1. There was nothing “secret” about this charge. 4. The “Unfair” Claim Fails for Additional Reasons. Most of the challenged conduct also falls within the UCL’s safe harbor for conduct that is expressly authorized by statute. See Cel-Tech, 20 Cal. 4th at 184 (“courts may not use the [UCL] to condemn actions the Legislature permits”). Here, as detailed above with respect to interest, the administrative fee and the application of taxes, Loya is arguing that certain things are unfair when the California Legislature has made the contrary judgment that PACE property tax assessments should be arranged through traditional assessment approaches and funded through traditional municipal bonds, including the 1911 Improvement Act and the 1915 Bond Act. See, Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 31 of 34 Page ID #:415 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24 e.g., Alvarez, 656 F.3d at 933 (applying UCL safe harbor); Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114, 1122 (9th Cir. 2009) (same). It cannot be unfair for either defendant to have done so. See, e.g., Byars v. SCME Mortg. Bankers, Inc., 109 Cal. App. 4th 1134, 1149 (2003) (rejecting unfair prong argument). 5. Loya Does Not Allege a Violation of the “Fraudulent” Prong. Loya’s attempt to invoke the UCL’s “fraudulent” prong fails for two reasons. First, and dispositively, it relies only on the four allegedly “deceptive” acts shown in the preceding Section of this brief not to meet that standard. Second, Loya does not meet the pleading standard for describing actionable fraudulent conduct necessary to sustain his UCL claim. A “fraudulent” business practice under the UCL is one in which members of the affected public are likely to be deceived, In re Tobacco II Cases, 46 Cal. 4th 298, 312 (2009), and the heightened pleading standard of Federal Rule of Civil Procedure 9(b) applies. Davis v. HSBC Bank Nevada N.A., 691 F.3d 1152, 1169 (9th Cir. 2012); Kearns v. Ford Motor Co., 567 F.3d 1120, 1125-27 (9th Cir. 2009). “Averments of fraud must be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged” and allegations regarding what is false or misleading and why it is false. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003). The Complaint does not meet this standard. Although Loya alleges deception on the part of “Defendants” generally, this kind of group pleading does not satisfy Rule 9(b), as it fails to give Renovate America sufficient notice of its own particular alleged misconduct. See, e.g., Compl. ¶¶ 87-117, 94, 99, 103, 108, 231; see Vess, 317 F.3d at 1106. This is particularly important because, as discussed above, Renovate America is not a creditor yet the conduct Loya singles out is the conduct of disclosing and charging costs and applying payments. Loya has failed to identify any specific business practice of Renovate America that is likely to deceive the public, or to explain how any such business practice is false or misleading. Absent specific factual allegations as to Renovate America, Loya has not plead a viable claim under the Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 32 of 34 Page ID #:416 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 25 UCL’s “fraudulent” prong. See Vess, 317 F.3d at 1107; Kearns, 567 F.3d at 1124. III. THE COMPLAINT SHOULD BE DISMISSED UNDER RULE 12(B)(7). The Complaint also fails due to Loya’s failure to join the co-owner of the Climbing Rose Property and co-signatory of the Assessment Contract as a necessary party. Rule 19 provides that a person “must be joined as a party” if the person has an interest in the action and disposing of the action in her absence would “impair or impede the person’s ability to protect the interest,” or “leave an existing party subject to substantial risk of incurring double, multiple, or otherwise inconsistent obligations.” Fed. R. Civ. P. 19(a)(1). If the person “cannot be joined,” then the case may be dismissed if the missing party is indispensable to the action. Id. 19(b). The plaintiff must plead the reasons for failing to join a necessary party. Id. 19(c). Plaintiff George Loya’s wife—Judith Loya—is a necessary party under this test because she owns the subject Property and also executed the Assessment Contract (RJN, Ex. 2), making her a joint claimant of whatever right Loya is attempting to assert. Ms. Loya’s interests are at issue for a number of reason, including that Loya seeks injunctive relief that would amend the terms of a contract she is a party to (Compl. ¶ 228) and asserts TILA claims that, if successful, would preclude Ms. Loya from asserting her own claims. See 15 U.S.C. § 1640(d) (allowing “one recovery of damages” “[w]hen there are multiple obligors”). The Defendants are at risk from her absence, facing double or inconsistent obligations such as from a separate lawsuit by Ms. Loya – even after Defendants defeat Mr. Loya’s lawsuit. See, e.g., Maynard v. Wells Fargo Bank, N.A., 2012 WL 4898021, at *2-3 (S.D. Cal. Oct. 15, 2012) (TILA and UCL claims dismissed under Rule 19 for failure to join wife and co-borrower). Dismissal is required under Rule 19(b) because Mr. Loya did not plead any reason for this non-joinder, and his counsel refused to cause Judith Loya’s joinder when requested to do so, as part of the pre-motion conference. CONCLUSION This Court should dismiss the Complaint without leave to amend. Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 33 of 34 Page ID #:417 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 26 Respectfully submitted, Dated: January 17, 2017 By: /s/ Matthew S. Sheldon THOMAS M. HEFFERON (pro hac vice) thefferon@goodwinprocter.com STEVEN A. ELLIS sellis@goodwinprocter.com MATTHEW S. SHELDON (pro hac vice) msheldon@goodwinprocter.com MOLLY K. MADDEN mmadden@goodwinprocter.com GOODWIN PROCTER LLP Attorneys for Defendant: RENOVATE AMERICA, INC. Case 5:16-cv-02478-AB-KK Document 34-1 Filed 01/17/17 Page 34 of 34 Page ID #:418 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ACTIVE/88877904.1 THOMAS M. HEFFERON (pro hac vice) thefferon@goodwinprocter.com MATTHEW S. SHELDON (pro hac vice) msheldon@goodwinprocter.com GOODWIN PROCTER LLP 901 New York Avenue NW Washington, DC 20001 Tel.: 202.346.4000 Fax.: 202.346.4444 STEVEN A. ELLIS (SBN 171742) sellis@goodwinprocter.com MOLLY K. MADDEN (SBN 281483) mmadden@goodwinprocter.com GOODWIN PROCTER LLP 601 S. Figueroa Street, 41st Floor Los Angeles, CA 90017 Tel.: 213.426.2500 Fax.: 213.623.1673 Attorneys for Defendant: RENOVATE AMERICA, INC. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA WESTERN DIVISION GEORGE LOYA, On Behalf of Himself and All Others Similarly Situated, Plaintiff, v. WESTERN RIVERSIDE COUNCIL OF GOVERNMENTS and RENOVATE AMERICA, INC., Defendants. Case No. 5:16-cv-02478-AB-KK [PROPOSED] ORDER GRANTING MOTION OF RENOVATE AMERICA, INC. TO THE DISMISS COMPLAINT Date: April 3, 2017 Time: 10:00 a.m. Courtroom: 7B Judge: Hon. André Birotte Jr. 350 W. 1st Street Los Angeles, CA 90012 Filed Concurrently with: 1. Notice of Motion and Motion; 2. Memorandum of Points and Authorities; 3. Joinder in Motion to Dismiss and Request for Judicial Notice of WRCOG Case 5:16-cv-02478-AB-KK Document 34-2 Filed 01/17/17 Page 1 of 2 Page ID #:419 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ACTIVE/88877904.1 1 [PROPOSED] ORDER GRANTING MOTION TO DISMISS The Court, having read and considered the Motion of RENOVATE AMERICA, INC. (“Renovate America”) to Dismiss the Complaint (“Motion to Dismiss”), and having heard the arguments of counsel, HEREBY ORDERS as follows: The Court GRANTS Renovate America’s Motion to Dismiss in its entirety under Federal Rules of Civil Procedure, Rule 12(b)(6) & (7) and Rule 19. Accordingly, the Complaint is hereby DISMISSED in its entirety without leave to amend. IT IS SO ORDERED. Dated: _________________, 2017 HON. ANDRÉ BIROTTE JR. UNITED STATES DISTRICT JUDGE Case 5:16-cv-02478-AB-KK Document 34-2 Filed 01/17/17 Page 2 of 2 Page ID #:420