Opinion
No. CIV S-12-0293 MCE DAD PS
08-27-2012
LANCE SNEAD, Plaintiff, v. AURORA LOAN SERVICES, LLC, et al., Defendants.
FINDINGS AND RECOMMENDATIONS
This matter came before the court on May 4, 2012, for hearing of defendants' motion to dismiss pro se plaintiff Lance Snead's complaint. Attorney Tanya McCullah appeared telephonically for defendants Aurora Loan Services, LLC ("Aurora") and Mortgage Electronic Registration Systems, Inc. ("MERS"). No appearance was made by or on behalf of plaintiff nor did plaintiff file a timely written opposition to defendants' motion. In light of plaintiff's nonappearance at the hearing, on May 7, 2012, the court issued an order requiring plaintiff to show cause why sanctions, including dismissal of this action, should not be imposed due to his failure to file opposition to the motion or to appear at the hearing thereon. (Doc. No. 13.) Following the hearing and the issuance of the order to show cause, on May 29, 2012, plaintiff filed an untimely opposition to defendants' motion. (Pl.'s Opp.'n (Doc. No. 14.)) Thereafter, defendants' filed a reply. (Doc. No. 16.)
Defendants filed the motion to dismiss on February 10, 2012. (MTD (Doc. No. 6.))
On April 18, 2012, plaintiff attempted to file an unauthorized proposed amended complaint. (Doc. No. 10.) On April 24, 2012, the undersigned ordered the Clerk of the Court to strike that filing as failing to comply with Rule 15 of the Federal Rules of Civil Procedure.
Local Rule 230(c) provides that "no party will be entitled to be heard in opposition to a motion at oral arguments if opposition has not been timely filed by that party." Moreover, Local Rule 230(i) provides that "failure to appear may be deemed withdrawal of . . . opposition to the motion . . . ." In this regard, plaintiff's failure to file timely opposition to, or appear at the hearing of, defendants' motion to dismiss could be deemed a waiver of opposition to the granting of the motion. However, in light of plaintiff's pro se status, the undersigned has reviewed the merits of defendants' motion and has considered plaintiff's untimely May 29, 2012 opposition filed in response to the Order to Show Cause issued by the undersigned on May 7, 2012.
BACKGROUND
Plaintiff's complaint alleges as follows. In the summer of 2007, plaintiff executed a Deed of Trust to obtain a loan in the amount of $403,500 to purchase real property located at 527 Picolit Court, in Fairfield, CA. (Compl. (Doc. No. 1-1) at 8, 25-28.) Sometime thereafter "Defendants made subsequent transfers [and] assignments of the subject loan . . ." (Id. at 8.) On or about September 7, 2010, a Notice of Default was recorded. (Id.) In February of 2011, and August of 2011, Notices of Trustee Sale were recorded. (Id. at 10.)
Page number citations such as this one are to the page number reflected on the court's CM/ECF system and not to page numbers assigned by the parties.
According to defendants plaintiff stopped making payments on his mortgage loan on January 1, 2010. (MTD (Doc. No. 6) at 12.)
According to defendants, the foreclosure sale of plaintiff's home has yet to occur. (MTD (Doc. No. 6) at 12.)
On November 2, 2011, plaintiff filed a complaint in the Solano County Superior Court against defendants Aurora, Cal-Western Reconveyance, American Brokers Conduit and MERS, alleging causes of action for wrongful foreclosure, fraud, declaratory relief, quiet title, accounting, violation of California Business and Professions Code § 17200, et seq., unjust enrichment and injunctive relief. (Id.. at 3.) On February 3, 2012, defendants Aurora and MERS removed the action to this court on the basis of diversity jurisdiction. (Removal Notice (Doc. No. 1) at 3.)
Although plaintiff's complaint was filed in state court on November 2, 2011, it appears that defendants were not served with the complaint until January 5, 2012. (Doc. No. 1-2 at 4.)
STANDARD
The purpose of a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure is to test the legal sufficiency of the complaint. N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff is required to allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, __, 129 S. Ct. 1937, 1949 (2009).
In determining whether a complaint states a claim on which relief may be granted, the court accepts as true the allegations in the complaint and construes the allegations in the light most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1989). In general, pro se complaints are held to less stringent standards than formal pleadings drafted by lawyers. Haines v. Kerner, 404 U.S. 519, 520-21 (1972). However, the court need not assume the truth of legal conclusions cast in the form of factual allegations. United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While Rule 8(a) does not require detailed factual allegations, "it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 129 S. Ct. at 1949. A pleading is insufficient if it offers mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555. See also Iqbal, 129 S. Ct. at 1950 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."). Moreover, it is inappropriate to assume that the plaintiff "can prove facts which it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged." Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).
In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), the court is permitted to consider material which is properly submitted as part of the complaint, documents that are not physically attached to the complaint if their authenticity is not contested and the plaintiff's complaint necessarily relies on them, and matters of public record. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001).
ANALYSIS
I. Judicial Estoppel
Defendants argue that plaintiff's complaint must be dismissed, in part, because plaintiff is judicially estopped from prosecuting this action as a result of his failure to disclose the claims asserted herein during his bankruptcy proceedings. (MTD (Doc. No. 6.) at 13.) Specifically, defendants allege that on September 23, 2010, plaintiff filed a Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the Eastern District of California and that a discharge order was entered by that court on January 10, 2011. (Id. at 12.) Defendants contend that plaintiff failed to disclose his claims asserted in this action during those bankruptcy proceedings. (Id. at 14.)
In his untimely opposition, plaintiff does not dispute defendants' argument with respect to this issue. Rather, plaintiff states simply that:
Although Plaintiff filed for bankruptcy and the subject loan may have been part of the bankruptcy estate at one point, however, Plaintiff believes that this does not deprive Plaintiff of his legal interest on the subject property, whereby Plaintiff was not able to disclose the bankruptcy to this Court as Plaintiff not (sic) deem necessary.(Pl.'s Opp.'n (Doc. No. 14) at 3.) Plaintiff reiterates that statement in his sworn declaration submitted with his untimely opposition:
That although I filed bankruptcy that I was not able to disclose to this court, however, I still maintained legal interest on the subject property at 572 Picolit Court, Fairfield California, even during the bankruptcy proceedings, and that I believe that the disclosure thereof as as (sic) not necessary.(Snead Decl. (Doc. No. 14) at 27.)
"Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position." Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001). In determining whether to apply the doctrine of judicial estoppel, the district court may consider whether a party's later position is clearly inconsistent with its earlier position; whether the court in the earlier lawsuit accepted the party's initial position; and whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. (Id. at 782-83.)
"[A] debtor who fail[s] to disclose a pending claim as an asset in a bankruptcy proceeding where debts were permanently discharged [is] estopped from pursuing such claim in a subsequent proceeding." (Id. at 784.) See also Cannon-Stokes v. Potter, 453 F.3d 446, 448 (7th Cir. 2006) ("All six appellate courts that have considered this question hold that a debtor in bankruptcy who denies owning an asset, including a chose in action or other legal claim, cannot realize on that concealed asset after the bankruptcy ends."). Further "[t]he debtor's duty to disclose potential claims as assets does not end when the debtor files schedules, but instead continues for the duration of the bankruptcy proceeding." Hamilton, 270 F.3d at 785. See also HPG Corp. v. Aurora Loan Services, LLC, 436 B.R. 569, 577 (E.D. Cal. 2010) ("[T]he Bankruptcy Code subjects debtors to a continuing duty to disclose all pending and potential claims."). "If [the debtor] fail[s] to properly schedule an asset, including a cause of action, that asset continues to belong to the bankruptcy estate and does not revert to [the debtor]." Cusano v. Klein, 264 F.3d 936, 945-46 (9th Cir. 2001) (citing Vreugdenhill v. Navistar Int'l Transp. Corp., 950 F.2d 524, 526 (8th Cir. 1991) (property is not abandoned by operation of law unless the debtor "formally schedule[s] the property before the close of the case")). "The duty to disclose prevents the plaintiff from proceeding on a cause of action which is the property of the bankruptcy estate." HPG Corp., 436 B.R. at 577.
"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." Hamilton, 270 F.3d at 784. "[T]he duty of the bankruptcy petitioner to disclose the existence of a potential claim is not a formalistic duty predicated on the procedural status of a claim, but is a duty of candor that accrues from the time the facts that give rise to the potential claim are known." Rose v. Beverly Health and Rehabilitation Services, Inc., 356 B.R. 18, 25 (E.D. Cal. 2006). See also Cannata v. Wyndham Worldwide Corp., 798 F. Supp.2d 1165, 1173 (D. Nev. 2011) ("Debtors have a continuing duty during bankruptcy proceedings to amend their schedules and add potential claims as assets."); Monroe County Oil Co., Inc. v. Amoco Oil Co., 75 B.R. 158, 162 (S.D. Ind. 1987) ("Among other things, the debtor must disclose any litigation likely to arise in a nonbankruptcy context."); cf. In re Brown, 363 B.R. 591, 605 (Bkrtcy. D. Mont. 2007) ("Moreover, the accrued cause of action is property of the estate even if the debtors were unaware of the claim when they filed for bankruptcy protection.").
Here, the undersigned takes judicial notice of In re Lance Vincent Snead, Bankruptcy Case No. 10-45345 (E.D. Cal. 2010), a bankruptcy case in which plaintiff filed a Chapter 7 bankruptcy petition on September 23, 2010, and in which a discharge order was entered on January 10, 2011. In the course of those bankruptcy proceedings plaintiff did not disclose as potential assets any of the claims asserted in the complaint filed in this action. (RJN, Ex. C (Doc. No. 7-1) at 29-80.) Moreover, after reviewing the allegations found in the complaint, it is apparent that plaintiff had knowledge of sufficient facts prior to the discharge order in his bankruptcy proceeding to know that there existed potential causes of action that should have been disclosed as assets.
Defendants have filed a request for judicial notice of the bankruptcy petition filed in that case. (RJN, Ex. C (Doc. No. 7-1) at 29-80.) A court may take judicial notice of its own files and documents filed in other courts. Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006); Burbank-Glendale-Pasadena Airport Auth. v. City of Burbank, 136 F.3d 1360, 1364 (9th Cir. 1998); Hott v. City of San Jose, 92 F. Supp. 2d 996, 998 (N.D. Cal. 2000).
Plaintiff's complaint alleges that his original lender was defendant American Brokers Conduit, who "made subsequent transfers" and "assignments of the subject loan . . ." (Compl. (Doc. No. 1-1) at 8.) On or about September 7, 2010, a Notice of Default was recorded by "Aurora Loan Services LLC, c/o Cal-Western Reconveyance Corporation." (Id.) Plaintiff's complaint alleges that:
Pursuant to California law, "[t]he foreclosure process is commenced by the recording of a Notice of Default and Election to Sell by the trustee." Moeller v. Lien, 25 Cal. App.4th 822, 830 (1994).
Inasmuch as CAL-WESTERN RECONVEYANCE was not the proper trustee then during the Notice of Default . . . and inasmuch as the AURORA LOAN SERVICES LLC could not be the lender/assignee after a post assignment and recordation after the Notice of Default, therefore, all foreclosure documents would likewise be rendered void as not in compliance with California Civil Code 2924 foreclosure laws, among others.(Id. at 9.)
In this regard, plaintiff's complaint characterizes the Notice of Default recorded on September 7, 2010, prior to plaintiff's filing of his bankruptcy petition, as the beginning of defendants' wrongful acts, alleging that "[t]he illegal foreclosure activity by Defendants started . . . when a Notice of Default was recorded" on September 7, 2010, and that the defendants were thereafter "acting through the recorded yet defective Notice of Default . . ." (Id. at. 9, 17.) Moreover, plaintiff's complaint alleges that the later recorded Notices of Trustee sale are "void and of no legal effect" because they arise "from [a] defective Notice of Default . . ." (Id. at 10.) The complaint also alleges that the defendants acted fraudulently by "obfuscating or misrepresenting the later steep monthly payments and rate increases" associated with plaintiff's mortgage loan, and that there is a dispute "regarding [the parties'] respective rights and duties concerning the terms of the subject loan . . ." (Id. at 14-15.)
Although plaintiff's complaint do not set forth any dates in connection with the allegations concerning plaintiff's monthly payments, the alleged rate increases and the terms of the subject loan, there is absolutely no reason to believe that plaintiff would not have been aware of the facts concerning these issues prior to conclusion of his bankruptcy proceedings.
Based on these allegations, it is clear that plaintiff had knowledge of enough facts prior to the discharge order entered in his bankruptcy on January 10, 2011, to know that the causes of action alleged in this action should have been disclosed as assets during those bankruptcy proceedings. Plaintiff had a continuing duty to disclose the potential claims alleged in this action as potential assets during the bankruptcy proceedings and failed to do so. "That shortcoming is clearly inconsistent with the instant lawsuit, where [p]laintiff asserts claims not properly disclosed in his bankruptcy proceedings." Arruda v. C & H Sugar Co., Inc., No. 2:06-cv-2308-MCE-EFB, 2007 WL 754627, at *4 (E.D. Cal. Mar. 8, 2007). Moreover, the bankruptcy court accepted plaintiff's initial position. See Cannata v. Wyndham Worldwide Corp., 798 F. Supp.2d 1165, 1171 (D. Nev. 2011) ("Judicial acceptance may be shown by confirmation of a debtor's reorganization plan."); Arruda, 2007 WL 754627, at *4 ("The fact that Plaintiff was granted a no-asset discharge by the bankruptcy court suggests that the court was unaware of the potential value of Plaintiff's claim and accepted his representations (or lack thereof) in that regard."). Finally, the undersigned finds that if plaintiff were permitted to maintain this action, he would have unfairly received the benefit of debt relief from the bankruptcy court at the expense of his creditors who were unaware of plaintiff's potential claims that he has asserted in this action.
Accordingly, defendants' motion to dismiss should be granted on the ground that plaintiff is judicially estopped from prosecuting this action. See Hay v. First Interstate Bank of Kalispell, N.A., 978 F.2d 555, 557 (9th Cir. 1992) ("We recognize that all facts were not known to Desert Mountain at that time, but enough was known to require notification of the existence of the asset to the bankruptcy court."); Kaufman v. Capital Quest, Inc., No. C-11-1301 JCS, 2011 WL 5864159, at *18 (N.D. Cal. Nov. 22, 2011) ("Because he failed to disclose the claims with his Chapter 7 bankruptcy, his claims are barred."); Shokohi v. JP Morgan Chase Bank, No. C 11-4947 MMC, 2011 WL 5412933, at *2-3 (N.D. Cal. Nov. 8, 2011) (applying judicial estoppel where plaintiff was aware of factual, if not legal, basis of claim); Vang Chanthavong v. Aurora Loan Services, Inc., 448 B.R. 789, 798 (E.D. Cal. 2011) ("Therefore, any claim that accrued prior to the close of Plaintiff's bankruptcy case remains in the bankruptcy estate."); HPG Corp., 436 B.R. at 578 ("The application of judicial estoppel in this case is necessary to protect the integrity of the bankruptcy process."); Flores v. GMAC Mortg., No. 2:09-cv-1216-GEB-GGH, 2010 WL 582115 (E.D. Cal. Feb. 11, 2010) (estopping plaintiff from bringing a TILA claim because the claim was not disclosed in the plaintiff's bankruptcy schedules); Balthrope v. Garcia-Mitchell, No. 2:09-cv-1013 FCD JFM PS, 2010 WL 430840 (E.D. Cal. Feb. 1, 2010) (applying judicial estoppel to preclude an action by a debtor who had failed to disclose the claim in his bankruptcy proceedings); Arruda, 2007 WL 754627, at *7 (granting motion to dismiss due to plaintiff's "failure to properly inform the bankruptcy court of the claims now asserted in this action.").
In light of this recommendation, the undersigned need not address defendants' persuasive alternative arguments in support of dismissal of plaintiff's complaint.
LEAVE TO AMEND
The court has carefully considered whether plaintiff may amend his complaint to state a cognizable claim upon which relief could be granted. "Valid reasons for denying leave to amend include undue delay, bad faith, prejudice, and futility." California Architectural Bldg. Prod. v. Franciscan Ceramics, 818 F.2d 1466, 1472 (9th Cir. 1988). See also Klamath-Lake Pharm. Ass'n v. Klamath Med. Serv. Bureau, 701 F.2d 1276, 1293 (9th Cir. 1983) (holding that while leave to amend shall be freely given, the court does not have to allow futile amendments). In light of the deficiency noted above, the undersigned finds that it would be futile to grant plaintiff leave to amend his complaint. Accordingly, the undersigned will recommend that this action be dismissed with prejudice.
In reaching this conclusion, although plaintiff's April 18, 2012 proposed amended complaint was stricken due to plaintiff's failure to comply with Rule 15 of the Federal Rules of Civil Procedure, the undersigned has nonetheless reviewed that proposed amended complaint and finds that it would fail to correct the fatal deficiency noted above.
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CONCLUSION
For the reasons stated above, IT IS HEREBY RECOMMENDED that:
1. Defendants' February 10, 2012 motion to dismiss (Doc. No. 6) be granted;
2. Plaintiff's November 2, 2011 complaint be dismissed with prejudice; and
3. This action be closed.
These findings and recommendations are submitted to the United States District Judge assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within fourteen days after being served with these findings and recommendations, any party may file written objections with the court and serve a copy on all parties. Such a document should be captioned "Objections to Magistrate Judge's Findings and Recommendations." Any reply to the objections shall be served and filed within seven days after service of the objections. The parties are advised that failure to file objections within the specified time may waive the right to appeal the District Court's order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).
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DALE A. DROZD
UNITED STATES MAGISTRATE JUDGE