John K. Reed v. Ohio Savings Bank et al

NOTICE OF MOTION AND MOTION to Dismiss Case

C.D. Cal.September 8, 2016

1 NOTICE OF MOTION AND MOTION TO DISMISS COMPLAINT UNDER FRCP 12(B)(6) - 750198.1 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 McGLINCHEY STAFFORD Scott J. Kelly (SBN 210747) Hassan Elrakabawy (SBN 248146) 18201 Von Karman Avenue, Suite 350 Irvine, California 92612 Telephone: (949) 381-5900 Facsimile: (949) 271-4040 Email: skelly@mcglinchey.com helrakabawy@mcglinchey.com Attorneys for Defendant NEW YORK COMMUNITY BANK UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA REED, JOHN K., Plaintiff, v. OHIO SAVINGS BANK; NEW YORK COMMUNITY BANK; ALDRIDGE PITE, LLP; DOES 1-25, Defendants. Case No.: 2:16-cv-06610-JEM Magistrate Judge John E. McDermott DEFENDANT NEW YORK COMMUNITY BANK’S NOTICE OF MOTION AND MOTION TO DISMISS COMPLAINT UNDER FRCP 12(B)(6); MEMORANDUM OF POINTS AND AUTHORITIES [Filed concurrently with Request for Judicial Notice and [Proposed] Order] DATE: October 11, 2016 TIME: 10:00 a.m. CTRM: C State Court Case No. 16CV03313 Action Filed: July 29, 2016 Trial Date: N/A TO ALL INTERESTED PARTIES: PLEASE TAKE NOTICE that, on October 11, 2016, at 10:00 a.m., or as soon thereafter as the matter may be heard, in Courtroom C of the above-entitled court, located at 312 N. Spring Street, Los Angeles, CA 90012, Defendant NEW Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 1 of 29 Page ID #:89 2 NOTICE OF MOTION AND MOTION TO DISMISS COMPLAINT UNDER FRCP 12(B)(6) - 750198.1 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 YORK COMMUNITY BANK (“NYCB”) will, and hereby does, move the Court to dismiss this action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. As set forth more fully in the accompanying Memorandum of Points and Authorities (the “Memorandum”), this motion is made on the ground that Plaintiff JOHN K. REED’s (“Reed”) Complaint (the “Complaint”) fails to state a claim against NYCB upon which relief can be granted. Pursuant to Local Rule 7-3, Conference of Counsel Prior to Filing of Motions, this motion is made following NYCB’s counsel’s attempts to contact Reed’s counsel on September 2, 2016, to discuss the substance of this motion and any potential resolution. NYCB’s counsel did not receive a response from Reed’s counsel until September 7, 2016, at which time NYCB’s counsel did thoroughly discuss with Reed’s counsel the substance of this contemplated motion and any potential resolution, however, no resolution which eliminated the necessary for a hearing on this motion could be reached. This motion is based on the attached Memorandum, the Request for Judicial Notice filed concurrently herewith, the pleadings on file herein, and upon such oral and documentary evidence as may be presented by the parties at the hearing. DATED: September 8, 2016 McGLINCHEY STAFFORD By: /s/ Hassan Elrakabawy HASSAN ELRAKABAWY SCOTT J. KELLY Attorneys for Defendant NEW YORK COMMUNITY BANK Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 2 of 29 Page ID #:90 i TABLE OF CONTENTS 750198.1 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 TABLE OF CONTENTS I. INTRODUCTION ................................................................................................ 1 II. FACTUAL AND PROCEDURAL BACKGROUND ......................................... 2 A. The Loan .................................................................................................... 2 B. The Office of Thrift Supervision Takes Possession of the Assets of AmTrust Bank f/k/a OSB, Appoints FDIC as Receiver, and NYCB Acquires the Loan from the FDIC ............................................................. 3 C. Reed Defaults On The Loan and Files Multiple Bankruptcies .................. 3 1. NYCB Initiates Foreclosure ............................................................ 3 2. The First Bankruptcy ....................................................................... 3 3. The Second Bankruptcy ................................................................... 4 4. The Third Bankruptcy ...................................................................... 4 D. NYCB Resumes Foreclosure Proceedings ................................................. 6 E. Reed Files Civil Actions ............................................................................ 6 III. LEGAL STANDARD ON MOTION TO DISMISS ........................................... 7 IV. ARGUMENT........................................................................................................ 8 A. The Cause of Action for Cancellation and Expungement of Instruments Fails To State a Claim ............................................................ 8 1. Reed is Judicially Estopped from Pursuing these Claims ............... 8 a. Reed’s Claims Are Estopped by His Motion to Strip the Junior Lien in the Third Bankruptcy Case ...................... 9 b. Reed Is Estopped By His Failure to Schedule Claims Related to the Allegedly Void Deed of Trust and Allegedly Void Assignment ................................................ 10 2. Reed’s Claims Are Barred by Res Judicata (Claim Preclusion) ..................................................................................... 10 3. Reed’s Claims Are Barred by Preclusive Effect of Confirmed Chapter 13 Plan ........................................................... 12 4. Reed’s Cause Of Action For Cancellation of Instruments Is Time-Barred ................................................................................... 13 5. The Defunct Status of OSB Does Not Warrant Cancellation of the Deed of Trust or the Assignment ........................................ 14 6. Reed Lacks Standing To Challenge the Assignment .................... 15 Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 3 of 29 Page ID #:91 ii TABLE OF CONTENTS 750198.1 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. Reed Fails to State a Claim to Cancel the Assignment Because the Allegedly Defective Assignment Does Not Alter NYCB’s Right to Foreclose .................................................. 15 8. Reed’s Robo-Signing Allegations Do Not State a Claim .............. 16 9. Cancellation of Instruments Is An Equitable Remedy To Which Reed Is Not Entitled ........................................................... 16 10. Reed’s Allegation That The Deed Of Trust Is Void Due To Forgery Does Not State A Plausible Claim Because He Subsequently Modified The Loan ................................................. 17 B. Reed Fails to State a Claim for Wrongful Foreclosure ............................ 17 1. The Claim Fails Because There Has Been No Sale ....................... 18 2. The Wrongful Foreclosure Claim Is Barred By the Tender Rule ................................................................................................ 18 3. Reed’s Wrongful Foreclosure Claim Is Wholly Derivative Of His Cancellation of Instrument Claims And Fails For The Same Reasons ................................................................................ 19 C. The Cause of Action for Declaratory Relief States No Claim against NYCB and Should Be Dismissed ................................................ 19 V. CONCLUSION .................................................................................................. 20 Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 4 of 29 Page ID #:92 iii TABLE OF AUTHORITIES 750198.1 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 TABLE OF AUTHORITIES Federal Cases Ah Quin v. Cty. of Kauai Dep’t of Trasnp., 733 F.3d 267 (9th Cir. 2013) ....................................................................................... 8 Ashcroft v. Iqbal, 556 U.S. 662 (2009) .................................................................................................... 7 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696 (9th Cir. 1990) ....................................................................................... 7 Bell Atlantic v. Twombly, 550 U.S. 544 (2007) ................................................................................................ 6, 7 Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992 (9th Cir. 2010) ....................................................................................... 7 Diunugala v. JP Morgan Chase Bank, N.A., No. 12CV2106-WQH_NLS, 2013 WL 5568737 (S.D. Cal. Oct. 3, 2013) .............. 14 Ghuman v. Wells Fargo Bank, N.A., 989 F.Supp.2d 994 (E.D. Cal. 2013) ......................................................................... 14 Goggia v. Federal Nat. Mortg. Ass’n, No. CIV-S-12-3091, 2013 WL 1279179, (E.D. Cal. Mar. 27, 2013) ....................... 16 Gwin v. Pac. Coast Fin. Servs., No. 09cv2734 BTM (BLM), 2010 WL 1691567 (S.D. Cal. Apr. 23, 2010) ............ 16 Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778 (9th Cir. 2001) ..................................................................................... 10 In re Cedano, 470 B.R. 522 (9th Cir. BAP 2012) ............................................................................ 14 In re Enewally, 368 F.3d 1165 (9th Cir. 2004) ................................................................................... 12 In re Lam, 211 B.R. 36 (9th Cir. BAP 1997) ................................................................................ 8 Johnson v. PNC Mortgage, No. C 14-02976 LB, 2014 WL 6629585 (N.D. Cal. Nov. 21, 2014) ....................... 14 Love v. United States, 915 F.2d 1242 (9th Cir. 1990) ..................................................................................... 7 New Hampshire v. Maine, 532 U.S. 742 (2001) .................................................................................................... 8 Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708 (9th Cir. 2001) ..................................................................................... 10 Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 5 of 29 Page ID #:93 iv TABLE OF AUTHORITIES 750198.1 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 ProShipLine Inc. v. Aspen Infrastructures Ltd., 609 F.3d 960 (9th Cir. 2010) ..................................................................................... 11 Qureshi v. Countrywide Home Loans, Inc., No. C, 09-4198 SBA, 2010 WL 841669 (N.D. Cal. Mar.10, 2010) .................................... 16 Stevens Technical Services., Inc. v. SS Brooklyn, 885 F.2d 584 (9th Cir. 1989) ....................................................................................... 8 Turtle Island Restoration Network v. U.S. Dep’t of State, 673 F.3d 914 (9th Cir. 2012) ............................................................................... 10, 11 Wright v. Wells Fargo Bank. N.A., No. 11-00212 SOM-RLP, 2012 WL 2973202, ( D. Haw. Jul. 19, 2012) .......... 10, 11 Yazdanpanah v. Sacramento Valley Mortg. Grp., No. C, 09-02024 SBA, 2009 WL 4573381 (N.D. Cal. Dec.1, 2009) ................................... 16 Zimmer v. PSB Lending Corp., 313 F.3d 1220 (9th Cir. 2002) ..................................................................................... 9 State Cases Arnold Management Corp. v. Eischen, 158 Cal.App.3d 575 (1984) ....................................................................................... 18 Calvo v. HSBCBank USA, N.A., 199 Cal.App.4th 118 (2011) ..................................................................................... 15 Fox v. Ethicon Endo-Surgery, Inc., 35 Cal.4th 797 (2005) ............................................................................................... 13 Gaffney v. Downey Savings & Loan Assn., 200 Cal.App.3d 1154 (1988) ..................................................................................... 18 Haynes v. EMC Mortg. Corp., 205 Cal.App.4th 329 (2012) ..................................................................................... 15 Lona v. Citibank, N.A., 202 Cal.App.4th 89 (2011) ....................................................................................... 17 Porter v. Superior Court, 73 Cal.App.3d 793 (Ct. App. 1977) .......................................................................... 16 Salazar v. Thomas, 236 Cal.App.4th 467 (2015) ..................................................................................... 12 Wilson & Wilson v. City Council of Redwood City, 191 Cal.App.4th 1559 (2011) ................................................................................... 19 Federal Statutes 11 U.S.C. § 1327(a) ...................................................................................................... 12 11 U.S.C. § 1332(b)(2) ................................................................................................. 12 11 U.S.C. §1332(b)(5) .................................................................................................. 12 Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 6 of 29 Page ID #:94 v TABLE OF AUTHORITIES 750198.1 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 U.S.C. § 362(d)(1) ..................................................................................................... 4 11 U.S.C. § 362(d)(2) ..................................................................................................... 4 State Statutes Cal. Civ. Code § 1189 ................................................................................................... 16 Cal. Civ. Code § 2936 ................................................................................................... 15 Cal. Civ. Code § 3412 ............................................................................................... 8, 15 Cal. Code Civ. Proc. § 343 ........................................................................................... 12 Cal. Gov. Code § 8202 .................................................................................................. 15 Federal Rules Fed. R. Civ. P. 8 .............................................................................................................. 7 Fed. R. Civ. P. 8(a)(2) ..................................................................................................... 7 Fed. R. Civ. P. 12(B)(6) .............................................................................................. 7, 8 Fed. R. Evid. 201(b) ........................................................................................................ 8 Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 7 of 29 Page ID #:95 1 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Reed is a mortgage borrower in default who brought this action to delay a legal and proper foreclosure. Reed does not dispute that he borrowed nearly $1 million dollars secured by a deed of trust against his property, and thereafter failed to make the payments. He now asks this Court to cancel the subject deed of trust and terminate foreclosure proceedings because his original lender is defunct and because the recorded deed of trust is a “forgery.” He also seeks cancellation of the recorded assignment of the deed of trust to NYCB because it was “robo-signed” and is otherwise defective. The Complaint fails to state a claim against NYCB and should be dismissed. Reed’s claims are barred by judicial estoppel. He sought and obtained an order from the Bankruptcy Court stripping the second mortgage from the property at issue. That relief was premised on the validity and enforceability of NYCB’s mortgage lien. He cannot now claim that same lien is invalid in order to avoid his obligations. He also failed to schedule any claims related to the allegedly void deed of trust and void assignment, which precludes him from making those claims now. In addition, Reed’s claims are barred by the doctrine of claim preclusion because the Bankruptcy Court has adjudicated the validity of the deed of trust, and NYCB’s right to enforce it, through its orders granting NYCB stay relief and through confirmation of a Chapter 13 Plan. Moreover, the Complaint does not allege facts sufficient to state a plausible claim for cancellation of instruments. Reed alleges no valid basis for cancellation of the deed of trust. It does not matter that Ohio Savings Bank (“OSB”) is defunct. NYCB acquired Reed’s loan from the FDIC in its capacity as receiver for AmTrust Bank f/k/a OSB. Further, Reed’s allegation that the original Deed of Trust is a forgery - implying that he did not really sign it and therefore it is invalid - is directly Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 8 of 29 Page ID #:96 2 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 contradicted by the fact that he entered into a loan modification agreement, with respect to the same loan, a couple of years after the loan was originated. Reed’s claim that the recorded assignment is void is also meritless. It is largely derivative of his request to cancel the deed of trust, and it fails for the same reasons. Moreover, Reed has no standing to challenge the assignment, which is theoretically voidable by the parties thereto, but not by Reed. Further, it is well settled under California law that a formal assignment does not need be recorded to demonstrate a transfer of a deed of trust, or to confer the right to foreclose to the holder of the Note. Finally, Reed’s “robo-signing” allegations are misplaced, and are based on a misunderstanding of California notary practice. Reed has no legitimate claim regarding the validity of the assignment. These deficiencies are discussed further below, and apply to all of the causes of action alleged in the Complaint. Based on these defenses and pleading deficiencies, the Complaint fails to state a claim upon which relief can be granted, and no amendment will cure it. NYCB’s Motion to Dismiss should be granted without leave to amend. II. FACTUAL AND PROCEDURAL BACKGROUND A. The Loan On or about December 1, 2005, Reed obtained a mortgage loan (the “Loan”) from OSB in the original principal sum of $999,990.00, which was reflected in a promissory note (the “Note”) secured by a deed of trust (the “Deed of Trust”) encumbering the real property located at 1611 Olive Street, Santa Barbara, California 93101 (the “Property”). (See Request for Judicial Notice (“RJN”) Exhibit A). The Deed of Trust identified Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary under the instrument, as nominee for OSB and OSB’s assigns. (See RJN Exhibit A). Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 9 of 29 Page ID #:97 3 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 B. The Office of Thrift Supervision Takes Possession of the Assets of AmTrust Bank f/k/a OSB, Appoints FDIC as Receiver, and NYCB Acquires the Loan from the FDIC On December 4, 2009, the Office of Thrift Supervision took possession of the business and property of AmTrust Bank f/k/a Ohio Savings Bank, and appointed the FDIC as its receiver. NYCB acquired the beneficial interest in the Note and Deed of Trust pursuant to a Purchase and Assumption Agreement dated December 4, 2009 between the FDIC, as Receiver for AmTrust Bank f/k/a Ohio Savings Bank, and New York Community Bank. (See RJN Exhibit B). The transfer is further evidenced by an assignment of deed of trust recorded on November 30, 2010 (the “Assignment”) wherein MERS, solely as nominee for OSB, assigned all right, title and interest in the Deed of Trust to NYCB. (See RJN Exhibit C). C. Reed Defaults On The Loan and Files Multiple Bankruptcies 1. NYCB Initiates Foreclosure Reed failed to make the required payments on the Loan. On or about October 15, 2010, a Notice of Default and Election to Sell was recorded reflecting that Reed was $7,713.90 in arrears as of October 13, 2010. (See RJN Exhibit D). Reed did not cure the default. On January 19, 2011, a Notice of Trustee Sale was recorded stating the total unpaid balance due at the time of publication as $1,025,119.75, and scheduling a foreclosure sale for February 7, 2011. (See RJN Exhibit E). 2. The First Bankruptcy On February 3, 2011 - four days before the scheduled trustee’s sale - Reed filed a Chapter 7 bankruptcy case1 (the “First Bankruptcy Case”). (See RJN Exhibit F, Dkt. No. 1). In the First Bankruptcy Case, NYCB moved for relief from the automatic stay. (See RJN Exhibit G). The Court granted the motion. (See RJN Exhibit H). The order reflects that NYCB’s motion for relief was “contested.” (See 1 United States Bankruptcy Court, Central District of California Case No. 11-10532. Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 10 of 29 Page ID #:98 4 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 id.) The Court granted stay relief because (a) NYCB lacked adequate protection for its secured interest in the Property (citing 11 U.S.C. § 362(d)(1)), and (b) because NYCB’s lien exceeded the value of the Property and the Property was not necessary to an effective reorganization (citing 11 U.S.C. § 362(d)(2)). (See id.) The Court specifically authorized NYCB to exercise its state-law foreclosure remedies against the Property. (See id.) This relief was necessarily premised on the validity and enforceability of NYCB’s mortgage lien-the very lien which Reed seeks to “cancel” in this case. On June 6, 2011, the First Bankruptcy Case was dismissed for Reed’s failure to appear at the scheduled meeting of creditors. (See RJN Exhibit F, Dkt. No. 23). On June 16, 2011, NYCB recorded a Notice of Trustee Sale to occur on July 7, 2011. (See RJN Exhibit W). 3. The Second Bankruptcy On June 29, 2011, eight days before the scheduled sale, Reed filed a Chapter 13 bankruptcy case2 (the “Second Bankruptcy Case”). (See RJN Exhibit I, Dkt. No. 1). On September 15, 2011, the Second Bankruptcy Case was dismissed based on Reed’s failure to fulfill basic requirements of a debtor. (See id., Dkt. No. 16). 4. The Third Bankruptcy Less than a month later, on October 11, 2011, Reed filed another Chapter 13 bankruptcy case3 (the “Third Bankruptcy Case”). (See RJN Exhibit J, Dkt. No. 1). In his schedules, Reed clearly identified a valid first mortgage encumbering the property in the amount of $1,032,595.00. (See RJN Exhibit K). Reed also filed and confirmed a Chapter 13 plan (see RJN Exhibit L), which called for payments to be made to NYCB.4 2 United States Bankruptcy Court, Central District of California Case No. 11-13053. 3 United States Bankruptcy Court, Central District of California Case No. 11-14749. 4 The schedules and plan misidentify the creditor as AmTrust Bank. However, Debtor made his plan payments for this debt to NYCB Mortgage Co. (See RJN Exhibit R at p. 6-10) , and NYCB subsequently moved for and obtained stay Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 11 of 29 Page ID #:99 5 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 Also in the Third Bankruptcy Case, Reed initiated an adversary proceeding to strip a second lien on the Property, held by Wells Fargo, based on the argument that NYCB’s lien was superior and that it exceeded the value of the Property. (See RJN Exhibit M). In the Complaint, Reed specifically alleged that the beneficiary of the Deed of Trust at issue in this case was NYCB Mortgage Co., LLC. (See RJN Exhibit M at 3:17-27 and Exhibit 4). Reed obtained judgment on that adversary complaint. (See RJN Exhibit N). Reed also moved the bankruptcy court to suspend his obligation to make payments to the junior lienholder based on the probability of success of the lien-stripping action. (See RJN Exhibit O). The Court granted Reed’s motion. (See RJN Exhibit P). Reed ultimately failed to make payments required under the Chapter 13 plan. On March 26, 2012, NYCB once again moved for stay relief. (See RJN Exhibit Q). Reed filed an opposition. (See RJN Exhibit R). In this opposition, Reed primarily challenged the application of post-petition payments he allegedly made to NYCB. But he never raised any argument or defense that the Deed of Trust, or the Note, was somehow invalid due to forgery (or for any other reason). He also raised no argument concerning the Assignment, and he did not otherwise challenge NYCB’s ability to enforce the Note or the Deed of Trust. (See id). Indeed, he attached a Loan Modification entered into in August 2008 with respect to the Loan, thereby confirming the legitimacy of the Note and Deed of Trust. (See id. at Exhibit D). The Bankruptcy Court granted NYCB’s motion for stay relief. (See RJN Exhibit S). Again, the relief granted by Court was premised on the existence of a valid and enforceable deed of trust in favor of the movant, NYCB. relief. (See RJN Exhibits Q and S). Further, in his adversary proceeding filed in the Third Bankruptcy Case, Reed identified NYCB Mortgage Company, LLC as the owner of the Loan. (See RJN Exhibit M at 3:17-27 and Exhibit 4). Thus, it is plain that the debt identified in the schedules and plan is the loan that is currently owed to NYCB, which is the subject of the Complaint. Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 12 of 29 Page ID #:100 6 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 On October 9, 2012, the Third Bankruptcy Case was dismissed based on Reed’s failure to appear at the scheduled meeting of creditors. (See RJN Exhibit J). D. NYCB Resumes Foreclosure Proceedings As of October 9, 2014, Reed remained in default under the Loan. NYCB, through its substituted foreclosure trustee Clear Recon Corp., recorded another Notice of Default and Election to Sell against the Property, reflecting that Reed was $160,198.68 in arrears as of October 7, 2014. (See RJN Exhibit T). Reed did not cure the default. On July 12, 2016, another Notice of Trustee Sale was recorded setting forth the total unpaid balance at the time of publication as $1,260,438.64 and scheduling a sale date for August 4, 2016. (See RJN Exhibit U). The sale was subsequently postponed and no foreclosure sale has occurred. E. Reed Files Civil Actions Reed filed a prior action against OSB and NYCB on February 3, 2016, which NYCB removed to this Court.5 The parties stipulated to dismissal of that case on June 8, 2016. (See RJN, Exhibit V). Reed filed the instant Complaint on July 29, 2016, again naming OSB and NYCB as defendants. This time, however, Reed also fraudulently joined Aldridge Pite, LLP (“AP”). On September 1, 2016, NYCB removed the case to this Court, joined by AP. In his muddled Complaint, Reed alleges the Deed of Trust is void because the named Beneficiary OSB “no longer exists as a viable and legal entity,” and because his signature is a forgery. (See Compl., ¶¶ 23-25). He claims that the Assignment is void because OSB was defunct at the time of assignment, because the dates of execution and notarization are different, and because the Deed of Trust is void. (See Compl., ¶¶ 21, 23). Reed further alleges that no foreclosure sale has yet taken place. 5 United States District Court, Central District of California Case No. 2:16-cv-01965 PSG (MRWx). Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 13 of 29 Page ID #:101 7 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 (See Compl., ¶ 1). None of Reed’s allegations support a viable claim upon which relief can be granted, and the Court should dismiss the Complaint. III. LEGAL STANDARD ON MOTION TO DISMISS Pursuant to Rule 8 of the Federal Rules of Civil Procedure, a complaint “must contain a short and plain statement of the claim showing that the pleader is entitled to relief…” Fed. R. Civ. P. 8(a)(2). While the Federal Rules adopt a flexible pleading policy, every complaint must, at a minimum, “give the defendant fair notice of what the … claim is and the grounds upon which it rests.” Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007). Although a complaint does not need detailed factual allegations, plaintiff must plead more than labels and conclusions, and a formulaic recitation of the elements of a cause of action is not sufficient. See id. A complaint must “contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 570). A party may move to dismiss a complaint for failure to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). A complaint may be dismissed as a matter of law for failure to state a claim for two reasons: (1) lack of a cognizable legal theory or (2) insufficient facts under a cognizable legal theory. See Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). In determining whether the complaint states a claim on which relief may be granted, allegations of material fact must be taken as true and construed in the light most favorable to plaintiff. See Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1990). However, the Court does not have to accept legal conclusions as true, and the Court may disregard allegations that are contradicted by matters properly the subject of judicial notice.6 See Daniels-Hall v. Nat’l Educ. Ass’n, 629 F.3d 992, 998 (9th Cir. 2010). 6The Court may take judicial notice of adjudicative facts which are “either (1) generally known within the territorial jurisdiction or the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b). Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 14 of 29 Page ID #:102 8 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 If the factual allegations in a complaint do not raise the “right to relief above the speculative level,” the complaint may be dismissed for failure to state a claim under Rule 12(b)(6). Twombly, 550 U.S. at 555. Further, a case must be dismissed if the material allegations, accepted as true, fail state a claim that is plausible on its face. Iqbal, 556 U.S. at 678 (2009). Reed’s claims fail for lack of any valid legal theory that would entitle him to relief. Further, the facts alleged - even if accepted as true - simply do not state a claim that is plausible on its face. Therefore, the Complaint should be dismissed. IV. ARGUMENT A. The Cause of Action for Cancellation and Expungement of Instruments Fails To State a Claim In his first cause of action, Reed seeks cancellation of the Deed of Trust and the Assignment based on a variety of alleged defects that he claims renders the instruments void. (See Compl., ¶¶ 19-36). California Civil Code § 3412 provides: “A written instrument, in respect to which there is a reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or cancelled.” Cal. Civ. Code § 3412. Reed’s cause of action for cancellation of the Deed of Trust and Assignment fails for multiple reasons: judicial estoppel, claim preclusion, the statute of limitations, lack of standing, and lack of a recognized legal theory that would entitle him to relief. 1. Reed is Judicially Estopped from Pursuing these Claims Judicial estoppel precludes a party from asserting a position in a current legal proceeding which is contrary to the position that party previously asserted in another. Stevens Technical Services., Inc. v. SS Brooklyn, 885 F.2d 584, 588 (9th Cir. 1989). Its purpose is to protect the integrity of the judicial process by prohibiting parties from deliberately changing positions according to the exigencies of the moment. See Ah Quin v. Cty. of Kauai Dep’t of Trasnp., 733 F.3d 267, 270-71 (9th Cir. 2013) citing Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 15 of 29 Page ID #:103 9 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001). When a party takes a position, and persuades a court to grant relief based on that position, judicial estoppel precludes that party from later taking a clearly inconsistent position in different litigation. See Ah Quin, 733 F.3d at 270-71. Because Reed obtained relief from the Bankruptcy Court that was premised on the validity and enforceability of NYCB’s Deed of Trust, he is judicially estopped from arguing now that either the Deed of Trust or Assignment is invalid. a. Reed’s Claims Are Estopped by His Motion to Strip the Junior Lien in the Third Bankruptcy Case In a Chapter 13 bankruptcy, a lien on a residential mortgage may be “stripped down” into an unsecured claim only if it is completely unsecured. See In re Lam, 211 B.R. 36 (9th Cir. BAP 1997); Zimmer v. PSB Lending Corp., 313 F.3d 1220 (9th Cir. 2002). Thus, to successfully strip off a junior lien, a debtor must identify superior liens, their value, and the value of the encumbered property so that the bankruptcy court can determine if lien stripping is appropriate. As set forth above, Reed filed an adversary complaint in the Third Bankruptcy Case to strip Wells Fargo’s junior lien from the Property. (See RJN Exhibit M). In that complaint, Reed stated that “[his] ownership interest in the Property is subject to a First Deed of Trust in favor of NYCB Mortgage Company, LLC, with a balance scheduled by the Debtor in the amount of $1,041,000.00.” (See RJN Exhibit M at ¶¶ 10, 13). In support of his adversary complaint, Reed attached a copy of the very Deed of Trust he now claims is a forgery. (See id. at Exhibit 4). This underscores the brazenly inconsistent nature of his present claims. Reed obtained a judgment in his favor on his adversary complaint, stripping a mortgage lien held by Wells Fargo. (See RJN Exhibit N). Reed also filed a motion asking the Court to suspend payments to Wells Fargo based on the “strong likelihood” that he would prevail in the adversary proceeding. (See RJN Exhibit O). Reed obtained an order granting that motion and suspending Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 16 of 29 Page ID #:104 10 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 payments. (See RJN Exhibit P). Reed clearly and unequivocally took the position that NYCB’s Deed of Trust was valid and enforceable against the Property. Now, in his Complaint, Reed attempts to take the contrary position that NYCB’s Deed of Trust is void and unenforceable. This Court should not countenance such tactics. Under the circumstances, and based on the authority above, Reed is estopped from claiming that the Deed of Trust is void. b. Reed Is Estopped By His Failure to Schedule Claims Related to the Allegedly Void Deed of Trust and Allegedly Void Assignment In a bankruptcy case, a debtor has an affirmative duty to disclose to creditors all of the debtor’s interests and property rights, without limitation, including lawsuits and claims. Therefore, “[i]n the bankruptcy context, a party is judicially estopped from asserting a cause of action not raised in a reorganization plan or otherwise mentioned in the debtor’s schedules or disclosure statements.” Hamilton v. State Farm Fire & Cas. Co. 270 F.3d 778, 783 (9th Cir. 2001). “Judicial estoppel will be imposed when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy, but fails to amend his schedules or disclosure statements to identify the cause of action as a contingent asset.” Id. at p. 784. Here, Reed failed to disclose his purported claims against NYCB and the other defendants herein in his numerous bankruptcy filings, even though all of the facts he is alleging today plainly existed when he sought the protection of the Bankruptcy Court. For this additional reason, judicial estoppel bars Reed’s claims seeking to cancel the Deed of Trust and Assignment. 2. Reed’s Claims Are Barred by Res Judicata (Claim Preclusion) Reed’s claims also fail because he failed to raise them in the context of stay relief litigation that occurred during the First Bankruptcy Case and the Third Bankruptcy Case. The final judgments granting stay relief in those cases operate to bar Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 17 of 29 Page ID #:105 11 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 Reed’s present claims based on the doctrine of res judicata (specifically, claim preclusion). Res judicata “bars litigation in a subsequent action of any claims that were raised or could have been raised in the prior action.” Wright v. Wells Fargo Bank. N.A., No. 11-00212 SOM-RLP, 2012 WL 2973202 at * 4, ( D. Haw. Jul. 19, 2012), quoting Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 713 (9th Cir. 2001). Claim preclusion applies where there is “(1) an identity of claims, (2) a final judgment on the merits, and (3) privity between parties.” Id. quoting Turtle Island Restoration Network v. U.S. Dep’t of State, 673 F.3d 914, 917 (9th Cir. 2012). In the stay relief proceedings in both the First and Third Bankruptcy Cases, the moving party was New York Community Bank, and the opposing party was Reed. (See RJN Exhibits G and Q). An order granting a creditor relief from the automatic stay is a final judgment on the merits with preclusive effect. See Wright , 2012 WL 2973202 at *7. The only real issue is whether there is an identity of claims. In the Ninth Circuit, courts look to four factors in determining an identity of claims: (1) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (2) whether substantially the same evidence is presented in the two actions; (3) whether the two suits involve infringement of the same right; and (4) whether the two suits arise out of the same transactional nucleus of facts. Turtle Island Restoration Network, 673 F.3d at 917-18 (9th Cir. 2012). The last factor is the most important. Id. “Whether two suits arise out of the same transactional nucleus depends upon whether they are related to the same set of facts and whether they could conveniently be tried together.” Id. quoting ProShipLine Inc. v. Aspen Infrastructures Ltd., 609 F.3d 960, 968 (9th Cir. 2010). In order to obtain stay relief, NYCB had to establish the validity and enforceability of the Deed of Trust. The Bankruptcy Court necessarily relied on the validity and enforceability of the Deed of Trust when it gave NYCB permission to proceed with foreclosure. (See RJN Exhibits F and O). Obviously, Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 18 of 29 Page ID #:106 12 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 Reed’s claims that the Deed of Trust and Assignment are void could have been conveniently raised and tried in those proceedings. Therefore, an identity of claims exists. Reed’s failure to raise these claims then precludes his attempt to litigate them now. Turtle Island Restoration Network, 673 F.3d at 918. Since there is an identity of clams, a final judgment on the merits, and an identity of parties, claim preclusion applies and precludes Reed from pursuing the “cancellation of instruments” claims in his Complaint. Because those claims are the foundation for his entire Complaint, the Complaint should be dismissed, without leave to amend. 3. Reed’s Claims Are Barred by Preclusive Effect of Confirmed Chapter 13 Plan The Bankruptcy Code establishes the preclusive effect of a confirmed Chapter 13 plan. “The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.” 11 U.S.C. § 1327(a). The binding effect extends to all questions pertaining to the plan that were or could have been raised. See In re Enewally, 368 F.3d 1165, 1172 (9th Cir. 2004). Here, Reed filed and confirmed a Chapter 13 plan that utilized 11 U.S.C. §1332(b)(5) to gain the right to cure $30,556.00 in arrears on the first mortgage by making extra payments to NYCB over the term of the plan. (See RJN Exhibit L at p.5). This treatment is only available as to the claim of a creditor holding a valid security interest in real property that is the debtor’s principal residence. See 11 U.S.C. § 1332(b)(2) and (5). The Court confirmed this plan. (See RJN Exhibit J, Dkt. No. 26). The existence and validity of the Deed of Trust was a foundation of Reed’s plan, and the Court confirmed that plan, giving it preclusive effect. Therefore, res judicata bars Reed’s present attempt to challenge the validity and enforceability of the Deed of Trust. Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 19 of 29 Page ID #:107 13 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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. Reed’s Cause Of Action For Cancellation of Instruments Is Time-Barred Actions for cancellation of an instrument are subject to the four-year limitations period in the catchall provision of California Code of Civil Procedure section 343. Salazar v. Thomas, 236 Cal. App.4th 467, 477 n.8 (2015). The Complaint seeks to void a Deed of Trust recorded in 2005 and an Assignment recorded in 2010. (See RJN Exhibits A and C). Reed did not file this suit until July 2016. Therefore, his “cancellation of instruments” claim as to either instrument is untimely unless the statute of limitations was tolled until July 2012. Reed may attempt to argue the discovery rule. When, as here, a cause of action would be barred by the statute of limitations without the discovery rule, plaintiff “must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” Fox v. Ethicon Endo-Surgery, Inc., 35 Cal.4th 797, 808 (2005). Thus, Reed bears the burden to allege facts showing diligence. Id. Here, Reed does not allege any facts that his discovery of the allegedly forged 2005 Deed of Trust was “reasonably delayed” until July 2012. Nor is there any allegation that his discovery of the allegedly defective 2010 Assignment was reasonably delayed until July 2012. Both documents were squarely at issue (indeed, attached to Reed’s own filings) in bankruptcy proceedings that occurred in 2011. There are no allegations in the Complaint as to why Reed was unable, despite reasonable diligence, to discover the alleged defects in these instruments sooner. The specific pleading requirement is particularly apt here, where the alleged defect literally involves Reed’s own signature. The discovery rule does not rescue these untimely “cancellation of instrument” claims. Therefore, this cause of action should be dismissed . Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 20 of 29 Page ID #:108 14 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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. The Defunct Status of OSB Does Not Warrant Cancellation of the Deed of Trust or the Assignment Reed claims that the Deed of Trust is void and subject to “cancellation and expungement” because OSB ceased to do business in 2009, and as a “defunct entity would no longer possess the capacity to hold any rights, title or interest to Reed’s ‘Prop’, thereby rendering it completely ‘void.’” (See Compl., ¶ 23). The reality is that NYCB acquired this Loan from the FDIC after that the FDIC took over the assets of AmTrust f/k/a OSB on December 9, 2009. (See RJN, Exhibit B at ¶ 3.1 (“the Assuming Bank hereby purchases from the Receiver, and the Receiver hereby sells, assigns, transfers, conveys, and delivers to the Assuming Bank, all right, title, and interest of the Receiver in and to all of the assets of the Failed Bank . . . .”). Putting aside the question of whether the demise of OSB would nullify loans that it owned at the time of death, here NYCB acquired the Loan while OSB was still in existence, albeit under the control of the FDIC as receiver. Further, this claim lacks merit as to the Assignment because MERS was named the beneficiary (as OSB’s nominee) under the Deed of Trust and had authority to assign the Deed of Trust even after OSB became defunct. Courts routinely recognize that MERS has broad power to act as nominee of a lender, with or without specific direction or consent from the lender. Reed has provided no authority to suggest this power is affected when a lender becomes defunct and is in receivership. See Ghuman v. Wells Fargo Bank, N.A., 989 F.Supp.2d 994, 1002 (E.D. Cal. 2013). See also In re Cedano , 470 B.R. 522, 531 (9th Cir. BAP 2012) (MERS’s authority to act as beneficiary is independent of the lender’s status). In the present case, the power of MERS as nominee under the Deed of Trust was not impaired by OSB ceasing operations, and the Assignment is perfectly valid. Reed’s arguments that the Deed of Trust and Assignment are invalid because OSB became defunct lack merit, and his “cancellation of instruments” claims fail as a matter of law. Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 21 of 29 Page ID #:109 15 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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. Reed Lacks Standing To Challenge the Assignment Reed lacks standing to challenge the Assignment. This is because the Assignment does not impact his obligations under the Loan in any way, or cause him any demonstrable prejudice, because he is not a party to the Assignment. See Johnson v. PNC Mortgage, No. C 14-02976 LB, 2014 WL 6629585, at *9 (N.D. Cal. Nov. 21, 2014); Diunugala v. JP Morgan Chase Bank, N.A., No. 12CV2106-WQH_NLS, 2013 WL 5568737, at *8 (S.D. Cal. Oct. 3, 2013). Based on the above authority, Reed lacks standing to challenge the Assignment to NYCB, and Reed’s claim for cancellation of the Assignment fails. 7. Reed Fails to State a Claim to Cancel the Assignment Because the Allegedly Defective Assignment Does Not Alter NYCB’s Right to Foreclose A claim for cancellation requires a showing that the instrument may cause serious injury to a person against whom it is void or voidable. See Cal. Civ. Code § 3412. Regarding the Assignment, Reed has not alleged facts to establish this element. It is well settled under California law that the transfer of a promissory note carries with it the security, without any formal assignment. Thus, there is no requirement that an assignment be recorded in order to give a trustee the ability to foreclose under a Deed of Trust. See Cal. Civ. Code § 2936; Calvo v. HSBCBank USA, N.A., 199 Cal.App.4th 118, 123 (2011); Haynes v. EMC Mortg. Corp., 205 Cal.App.4th 329, 336 (2012). Reed cannot mount a successful challenge to NYCB’s ownership of the Note or the corresponding rights under the Deed of Trust. His claims regarding the invalidity of the recorded Assignment are essentially a red herring and should be dismissed. Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 22 of 29 Page ID #:110 16 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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. Reed’s Robo-Signing Allegations Do Not State a Claim Finally, to the extent Reed’s claims rely on the allegation that the Assignment of the Deed of Trust from MERS to NYCB was “robo-signed,” his claims fail.7 Reed alleges a “high level of suspicion” that the Assignment is invalid and void, because the date of execution precedes the date the Notary executed the acknowledgment. (See Comp. ¶ 31). Reed fails to understand the distinction between a notary executing a jurat and an acknowledgment. A jurat requires that the signer actually appear in person before the notary and actually sign the document in the presence of the notary. See Cal. Gov. Code § 8202. An acknowledgement requires a personal appearance to identify the signer, and that the signer acknowledge that he or she signed the document. See Cal. Civ. Code § 1189. Here, the notary performed an acknowledgment of the signature on the Assignment. Where the notary is performing an acknowledgement, the signer may sign outside the presence of the notary - even before the acknowledgment. See Goggia v. Federal Nat. Mortg. Ass’n, No. CIV-S-12-3091, 2013 WL 1279179 at *1-2, (E.D. Cal. Mar. 27, 2013). Thus, Reed has not stated a plausible claim for relief based on facts alleged. Reed does not allege or provide facts that the documents were signed, or the Assignment was effected, without proper authorization or acknowledgement. 9. Cancellation of Instruments Is An Equitable Remedy To Which Reed Is Not Entitled The cancellation of an instrument such as a deed is an equitable remedy and not an independent basis for liability. See, e.g., Gwin v. Pac. Coast Fin. Servs., No. 09cv2734 BTM (BLM), 2010 WL 1691567, at *4 (S.D. Cal. Apr. 23, 2010) (“Cancellation is an equitable remedy”); Qureshi v. Countrywide Home Loans, Inc., No. C 09-4198 SBA, 2010 WL 841669, at *7 (N.D. Cal. Mar.10, 2010) citing Porter 7 The Complaint refers to robo-signing of both the Deed of Trust and the Assignment. It seems clear from context-and common sense-that lender did not sign the Deed of Trust (Reed did) and that Reed is referring to the Assignment when he makes these allegations. See Compl ¶¶ 31-32; 35-36. Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 23 of 29 Page ID #:111 17 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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. Superior Court, 73 Cal.App.3d 793, 799 (Ct. App. 1977) (“A request to cancel a trustee’s deed is a request for a remedy as opposed to an independent cause of action.”); Yazdanpanah v. Sacramento Valley Mortg. Grp., No. C 09-02024 SBA, 2009 WL 4573381, at *6 (N.D. Cal. Dec.1, 2009). Therefore, Reeds first cause of action simply cannot be maintained as an independent action. Thus, it fails to state a claim and should be dismissed. 10. Reed’s Allegation That The Deed Of Trust Is Void Due To Forgery Does Not State A Plausible Claim Because He Subsequently Modified The Loan Reed’s claim that the 2005 Deed of Trust is “forged” and invalid is belied by the fact the Reed voluntarily modified the same loan in 2008. (See RJN, Exhibit R at Exhibit D). Reed attached the loan modification agreement to his opposition to NYCB’s motion for relief to support arguments that NYCB’s calculations regarding amounts due and owing were incorrect. (See id. at p. 4 (Declaration of John K. Reed, ¶ 4)). The attached loan modification stated that it “amended and supplemented one certain promissory note dated December 1, 2005” which is the very loan that Reed now seeks to invalidate in this action. (Id. at Exhibit 4). The Court may disregard allegations that are contradicted by matters that may be judicially noticed. Here, the loan modification agreement flatly contradicts Reed’s allegations that the Deed of Trust is a forgery. For all of reasons set forth above, Reed has no basis for seeking cancellation of the Deed of Trust or the Assignment. Thus, Reed cannot state a claim for cancellation of instruments, and that claim should be dismissed. B. Reed Fails to State a Claim for Wrongful Foreclosure Reed’s second cause of action essentially incorporates his cancellation claims, and alleges that the attempted foreclosure is wrongful. (See Compl., ¶¶ 37-39). California courts have identified the following elements of a claim for wrongful foreclosure: (1) the trustee or mortgagee caused an illegal, fraudulent, or willfully Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 24 of 29 Page ID #:112 18 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering. See Lona v. Citibank, N.A., 202 Cal.App.4th 89, 104 (2011). 1. The Claim Fails Because There Has Been No Sale In light of the above authorities, a foreclosure sale is a prerequisite to a claim for wrongful foreclosure. But Reed explicitly (and correctly) states that no sale has taken place. (See Compl., ¶ 1) Absent a sale of the Property, Reed cannot allege that he has been prejudiced or harmed. On the contrary, Reed continues to own the Property. Therefore, this claim should be dismissed. 2. The Wrongful Foreclosure Claim Is Barred By the Tender Rule Reed would be precluded from challenging a foreclosure sale, had one occurred, because there are no facts alleged that he has tendered the amounts owing under the Loan. Under California law, the “tender rule” requires that, as a precondition to challenging a foreclosure sale, a borrower must, in good faith and with the ability to perform, make an unconditional offer to pay, or pay, the secured debt prior to the foreclosure sale. In fact, it is well established that “an action to set aside a trustee’s sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security.” Arnold Management Corp. v. Eischen 158 Cal.App.3d 575, 578 (1984). It is a debtor’s responsibility to make an unambiguous tender of the entire amount due or else suffer the consequence that the tender is of no effect. Gaffney v. Downey Savings & Loan Assn., 200 Cal.App.3d 1154, 1165-1166 (1988). Further, “[n]othing short of the full Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 25 of 29 Page ID #:113 19 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 amount due the creditor is sufficient to constitute a valid tender, and the debtor must at his peril offer the full amount.” Id. at 1165. Absent such allegation, Reed’s claim for wrongful foreclosure fails to state a claim and should be dismissed. 3. Reed’s Wrongful Foreclosure Claim Is Wholly Derivative Of His Cancellation of Instrument Claims And Fails For The Same Reasons Reed’s wrongful foreclosure claim is also premised on the notion that the Deed of Trust and Assignment are void and should be cancelled. As set forth above, they are not void, and Reed is precluded from arguing they are void for a variety of reasons. The same arguments apply to his wrongful foreclosure claim, and therefore, it fails as a matter of law. C. The Cause of Action for Declaratory Relief States No Claim against NYCB and Should Be Dismissed To qualify for declaratory relief, Reed must demonstrate (1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to his rights or obligations. See Wilson & Wilson v. City Council of Redwood City, 191 Cal. App. 4th 1559, 1582 (2011). Here, Reed’s declaratory relief cause of action is based on the same facts as those supporting his cancellation of instruments and wrongful foreclosure causes of action. It is merely duplicative of those claims. Accordingly, for the reasons discussed above, Reed’s declaratory relief cause of action also fails. /// /// /// /// /// /// Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 26 of 29 Page ID #:114 20 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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. CONCLUSION Based on the foregoing, NYCB respectfully requests that the Complaint be dismissed. Because the deficiencies in the Complaint are fundamental and will not change, Reed should not be permitted leave to amend, as such amendment would be futile. DATED: September 8, 2016 McGLINCHEY STAFFORD By: /s/ Hassan Elrakabawy HASSAN ELRAKABAWY SCOTT J. KELLY Attorneys for Defendant NEW YORK COMMUNITY BANK Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 27 of 29 Page ID #:115 21 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 PROOF OF SERVICE STATE OF CALIFORNIA ) ) ss. COUNTY OF ORANGE ) I, Marina Hegel, declare: I am employed in the County of Orange, State of California. I am over the age of 18 and not a party to the within action. My business address is 18201 Von Karman Ave., Suite 350, Irvine, California 92612. On September 8, 2016, I served the document(s) described as DEFENDANT NEW YORK COMMUNITY BANK’S NOTICE OF MOTION AND MOTION TO DISMISS COMPLAINT UNDER FRCP 12(B)(6); MEMORANDUM OF POINTS AND AUTHORITIES as follows: BY MAIL: As follows: FEDERAL - I deposited such envelope in the U.S. mail at Irvine, California, with postage thereon fully prepaid, BY CM/ECF NOTICE OF ELECTRONIC FILING: I caused said document(s) to be served by means of this Court’s Electronic transmission of the Notice of Electronic Filing through the Court’s transmission facilities, to the parties and/or counsel who are registered CM/ECF users set forth in the service list obtained from this Court. Pursuant to Electronic Filing Court Order, I hereby certify that the above documents(s) was uploaded to the website and will be posted on the website by the close of the next business day and the webmaster will give e-mail notification to all parties. FEDERAL: I declare that I employed in the office of a member of the State Bar of this Court at whose direction the service was made. Executed on September 8, 2016, at Irvine, California. Marina Hegel Marina Hegel Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 28 of 29 Page ID #:116 22 MEMORANDUM OF POINTS AND AUTHORITIES 750198.1 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 SERVICE LIST U.S. District Court, Central District Case No. Case No.: 2:16-cv-06610-JEM JOHN K. REED v. OHIO SAVINGS BANK, et al. File # 105299.0061 Allen D. West, Esq. WEST & ASSOCIATES 700 N. Pacific Coast Highway, Suite 201 Redondo Beach, CA 90277 Attorneys for Plaintiff JOHN K. REED Tel: (310) 374-4141 Fax: (310) 372-4137 Email: westandassociates1@gmail.com Christopher L. Peterson, Esq. Fred T. Winters, Esq. ALDRIDGE PITE, LLP 4375 Jutland Drive, Suite 200 P.O. Box 17935 San Diego, CA 92177-0935 Attorneys for Defendant ALDRIDGE PITE, LLP Tel: (858) 750-7600 Fax: (619) 326-2430 E-Mail: fwinters@aldridgepite.com Case 2:16-cv-06610-JEM Document 12 Filed 09/08/16 Page 29 of 29 Page ID #:117 1 [PROPOSED] ORDER GRANTING MOTION TO DISMISS COMPLAINT 750296.1 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 McGLINCHEY STAFFORD Scott J. Kelly (SBN 210747) Hassan Elrakabawy (SBN 248146) 18201 Von Karman Avenue, Suite 350 Irvine, California 92612 Telephone: (949) 381-5900 Facsimile: (949) 271-4040 Email: skelly@mcglinchey.com helrakabawy@mcglinchey.com Attorneys for Defendant NEW YORK COMMUNITY BANK UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA REED, JOHN K., Plaintiff, v. OHIO SAVINGS BANK; NEW YORK COMMUNITY BANK; ALDRIDGE PITE, LLP; DOES 1-25, Defendants. Case No.: 2:16-cv-06610-JEM Magistrate Judge John E. McDermott [PROPOSED] ORDER GRANTING DEFENDANT NEW YORK COMMUNITY BANK’S MOTION TO DISMISS COMPLAINT DATE: October 11, 2016 TIME: 10:00 a.m. CTRM: C State Court Case No. 16CV03313 Action Filed: July 29, 2016 Trial Date: N/A The motion of Defendant NEW YORK COMMUNITY BANK (“Defendant”) to dismiss Plaintiff JOHN K. REED’s (“Plaintiff”) Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) (the “Motion”) came on regularly for hearing before the Honorable Magistrate Judge John E. McDermott at the date and time set forth above. After having considered the moving papers, opposition papers, reply papers, and oral argument, if any, and GOOD CAUSE APPEARING THEREFOR, Case 2:16-cv-06610-JEM Document 12-1 Filed 09/08/16 Page 1 of 4 Page ID #:118 2 [PROPOSED] ORDER GRANTING MOTION TO DISMISS COMPLAINT 750296.1 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 IT IS ORDERED THAT the Motion is GRANTED. IT IS FURTHER ORDERED THAT this action is hereby dismissed with prejudice. IT IS SO ORDERED. Dated: __________________ _________________________________ HON. JOHN E. McDERMOTT UNITED STATES MAGISTRATE JUDGE Case 2:16-cv-06610-JEM Document 12-1 Filed 09/08/16 Page 2 of 4 Page ID #:119 3 [PROPOSED] ORDER GRANTING MOTION TO DISMISS COMPLAINT 750296.1 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 PROOF OF SERVICE STATE OF CALIFORNIA ) ) ss. COUNTY OF ORANGE ) I, Marina Hegel, declare: I am employed in the County of Orange, State of California. I am over the age of 18 and not a party to the within action. My business address is 18201 Von Karman Ave., Suite 350, Irvine, California 92612. On September 8, 2016, I served the document(s) described as [PROPOSED] ORDER GRANTING DEFENDANT NEW YORK COMMUNITY BANK’S MOTION TO DISMISS COMPLAINT as follows: BY MAIL: As follows: FEDERAL - I deposited such envelope in the U.S. mail at Irvine, California, with postage thereon fully prepaid, BY CM/ECF NOTICE OF ELECTRONIC FILING: I caused said document(s) to be served by means of this Court’s Electronic transmission of the Notice of Electronic Filing through the Court’s transmission facilities, to the parties and/or counsel who are registered CM/ECF users set forth in the service list obtained from this Court. Pursuant to Electronic Filing Court Order, I hereby certify that the above documents(s) was uploaded to the website and will be posted on the website by the close of the next business day and the webmaster will give e-mail notification to all parties. FEDERAL: I declare that I employed in the office of a member of the State Bar of this Court at whose direction the service was made. Executed on September 8, 2016, at Irvine, California. Marina Hegel Marina Hegel Case 2:16-cv-06610-JEM Document 12-1 Filed 09/08/16 Page 3 of 4 Page ID #:120 4 [PROPOSED] ORDER GRANTING MOTION TO DISMISS COMPLAINT 750296.1 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 SERVICE LIST U.S. District Court, Central District Case No. Case No.: 2:16-cv-06610-JEM JOHN K. REED v. OHIO SAVINGS BANK, et al. File # 105299.0061 Allen D. West, Esq. WEST & ASSOCIATES 700 N. Pacific Coast Highway, Suite 201 Redondo Beach, CA 90277 Attorneys for Plaintiff JOHN K. REED Tel: (310) 374-4141 Fax: (310) 372-4137 Email: westandassociates1@gmail.com Christopher L. Peterson, Esq. Fred T. Winters, Esq. ALDRIDGE PITE, LLP 4375 Jutland Drive, Suite 200 P.O. Box 17935 San Diego, CA 92177-0935 Attorneys for Defendant ALDRIDGE PITE, LLP Tel: (858) 750-7600 Fax: (619) 326-2430 E-Mail: fwinters@aldridgepite.com Case 2:16-cv-06610-JEM Document 12-1 Filed 09/08/16 Page 4 of 4 Page ID #:121