Opinion
NO. CIV. S-09-1504 LKK/KJM.
December 21, 2010
ORDER
This cases arises out of a loan used for the purchase of plaintiff's home and the related mortgage. Defendant Greenpoint Mortgage Funding, Inc. ("Greenpoint"), who allegedly provided the initial loan, moves to dismiss all five claims against it. The remaining defendants, Mortgage Electronic Registration Systems, Inc. and EMC Mortgage Corporation, initially filed a motion to dismiss to be heard in parallel, but these defendants have withdrawn their motion.
For the reasons stated below, the court grants Greenpoint's motion in part.
I. Background
In two prior orders, the court extensively discussed the factual allegations in this case as alleged in the initial and first amended complaints. See Orders filed Sept. 3, 2009 and May 7, 2010 (ECF. Nos. 12 and 38). The allegations in the operative Second Amended Complaint ("SAC") are largely unchanged. Accordingly, the court does not repeat this factual background here.
II. Standard
The court has also previously articulated the standard for a Fed.R.Civ.P. 12(b)(6) motion to dismiss, although the parties appear not to have read this articulation. For example, plaintiff continues to invoke the "no set of facts" standard despite the court's explanation that this standard has been explicitly repudiated. See Order filed Sept. 3, 2009 at 10 n. 7. In light of this apparent confusion and the fact that the present motion turns on arguable nuances of this standard, the court repeats this standard here.
A Fed.R.Civ.P. 12(b)(6) motion challenges a complaint's compliance with the pleading requirements provided by the Federal Rules. In general, these requirements are provided by Fed.R.Civ.P. 8, although claims that "sound[] in" fraud or mistake must meet the requirements provided by Fed.R.Civ.P. 9(b). Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1103-04 (9th Cir. 2003). 1. Dismissal of Claims Governed by Fed.R.Civ.P. 8
Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." The complaint must give defendant "fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation and modification omitted).
To meet this requirement, the complaint must be supported by factual allegations. Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937, 1950 (2009). "While legal conclusions can provide the framework of a complaint," neither legal conclusions nor conclusory statements are themselves sufficient, and such statements are not entitled to a presumption of truth. Id. at 1949-50. Iqbal and Twombly therefore prescribe a two step process for evaluation of motions to dismiss. The court first identifies the non-conclusory factual allegations, and the court then determines whether these allegations, taken as true and construed in the light most favorable to the plaintiff, "plausibly give rise to an entitlement to relief." Id.; Erickson v. Pardus, 551 U.S. 89 (2007).
"Plausibility," as it is used in Twombly and Iqbal, does not refer to the likelihood that a pleader will succeed in proving the allegations. Instead, it refers to whether the non-conclusory factual allegations, when assumed to be true, "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 557). A complaint may fail to show a right to relief either by lacking a cognizable legal theory or by lacking sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).
The line between non-conclusory and conclusory allegations is not always clear. Rule 8 "does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 555). While Twombly was not the first case that directed the district courts to disregard "conclusory" allegations, the court turns to Iqbal and Twombly for indications of the Supreme Court's current understanding of the term. In Twombly, the Court found the naked allegation that "defendants 'ha[d] entered into a contract, combination or conspiracy to prevent competitive entry . . . and ha[d] agreed not to compete with one another,'" absent any supporting allegation of underlying details, to be a conclusory statement of the elements of an anti-trust claim. Id. at 1950 (quotingTwombly, 550 U.S. at 551). In contrast, the Twombly plaintiffs' allegations of "parallel conduct" were not conclusory, because plaintiffs had alleged specific acts argued to constitute parallel conduct. Twombly, 550 U.S. at 550-51, 556.
Twombly also illustrated the second, "plausibility" step of the analysis by providing an example of a complaint that failed and a complaint that satisfied this step. The complaint at issue inTwombly failed. While the Twombly plaintiffs' allegations regarding parallel conduct were non-conclusory, they failed to support a plausible claim. Id. at 566. Because parallel conduct would ordinarily be expected to arise without a prohibited agreement, an allegation of parallel conduct was insufficient support the inference that a prohibited agreement existed. Id. Absent such an agreement, plaintiffs were not entitled to relief.Id.
In contrast, Twombly held that model form 9 for negligence, demonstrated the type of pleading that satisfies Rule 8. Id. at 565 n. 10. This form provides "On June 1, 1936, in a public highway called Boylston Street in Boston, Massachusetts, defendant negligently drove a motor vehicle against plaintiff who was then crossing said highway." Form 9, Complaint for Negligence, Forms App., Fed. Rules Civ. Proc., 28 U.S.C. App., p 829. These allegations adequately "'state[] . . . circumstances, occurrences, and events in support of the claim presented.'"Twombly, 550 U.S. at 556 n. 3 (quoting 5 C. Wright A. Miller, Federal Practice and Procedure § 1216, at 94, 95 (3d ed. 2004)). The factual allegations that defendant drove at a certain time and hit plaintiff render plausible the conclusion that defendant drove negligently.
2. Dismissal of Claims Governed by Fed.R.Civ.P. 9(b)
A Rule 12(b)(6) motion to dismiss may also challenge a complaint's compliance with Fed.R.Civ.P. 9(b). See Vess, 317 F.3d at 1107. This rule provides that "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." These circumstances include the "time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (quoting Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004)). "In the context of a fraud suit involving multiple defendants, a plaintiff must, at a minimum, 'identif[y] the role of [each] defendant[] in the alleged fraudulent scheme.'" Id. at 765 (quoting Moore v. Kayport Package Express, 885 F.2d 531, 541 (9th Cir. 1989)). Claims subject to Rule 9(b) must also satisfy the ordinary requirements of Rule 8.
III. Analysis
Greenpoint moves for dismissal of plaintiff's claims under the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. ("RESPA"), for fraud and negligent misrepresentation, and for breach of California's Unfair Competition Law, Cal. Bus. and Prof. Code § 17200.
A. Truth In Lending Act
This is the third time the court has evaluated plaintiff's TILA allegations. Throughout this case, plaintiff's imprecise pleading and inadequate briefing by all parties have interfered with clear adjudication of the claims.
The SAC's third claim is for violation of TILA. The allegations contained in this section of the SAC allege that defendants failed to timely disclose "the calculation of interest prior and after its adjustment" and other unspecified information. SAC 46. Elsewhere in the complaint, plaintiff alleges that defendants failed to disclose that her payments were not fixed, and more generally that she did not receive any of the disclosures required by TILA prior to closing. SAC ¶¶ 13, 19.
Greenpoint's present challenge to the TILA claim turns on the fact that TILA imposes differing requirements on different types of loans, a distinction the court has not previously addressed in this case. Notably, the court previously observed that the allegation regarding disclosure of the calculation of interest prior and after its adjustment implicates 15 U.S.C. § 1639(a)(2)(B) and that the allegation regarding lending without regard to plaintiff's ability to repay implicates § 1639(h). Plaintiff explicitly cites § 1639 in the SAC, without citing any other TILA obligation. Section 1639 codifies the Home Ownership and Equity Protection Act ("HOEPA"), which amended TILA in 1994 to "combat predatory lending." In re First Alliance Mortg. Co., 471 F.3d 977, 984 n. 1 (9th Cir. 2006). Greenpoint's motion and plaintiff's opposition thereto raise two issues: whether plaintiff has adequately alleged that the loan is subject to HOEPA, and whether TILA imposes any non-HOEPA disclosure requirements applicable to this loan.
1. HOEPA
15 U.S.C. § 1639 only applies to loans that meet the requirements of 15 U.S.C. § 1602(aa). The latter subsection encompasses the following:
(1) A mortgage referred to in this subsection means a consumer credit transaction that is secured by the consumer's principal dwelling, other than a residential mortgage transaction, a reverse mortgage transaction, or a transaction under an open end credit plan, if —
(A) the annual percentage rate at consummation of the transaction will exceed by more than 10 percentage points the yield on Treasury securities having comparable periods of maturity on the fifteenth day of the month immediately preceding the month in which the application for the extension of credit is received by the creditor; or
(B) the total points and fees payable by the consumer at or before closing will exceed the greater of (i) 8 percent of the total loan amount; or (ii) $400.15 U.S.C. § 1602(aa). Greenpoint argues that the SAC does not allege that the loan at issue satisfies either of (aa)(1)(A) or (B), thereby failing to state a claim for violation of § 1639. Numerous other district courts have held that a complaint must at least allege facts suggesting that the loan falls into one of these categories. See, e.g., Biggins v. Wells Fargo Co., 266 F.R.D. 399, 411 (N.D. Cal. 2009), Palmer v. GMAC Commer. Mortg., 628 F. Supp. 2d 186, 190 (D.D.C. 2009), Lynch v. RKS Mortg., Inc., 588 F. Supp. 2d 1254, 1260 (E.D. Cal. 2008) (England, J.), Brown v. GMAC Mortg., LLC, 2010 U.S. Dist. LEXIS 50955 (E.D. Cal. May 21, 2010) (Burrell, J.). Plaintiff does not dispute that the complaint lacks such allegations. Instead, plaintiff argues that she is unable to determine the specifics of the loan absent discovery, and that she therefore cannot be required to allege these details in the complaint.
15 U.S.C. § 1602(aa)(2) grants the Board of Governors of the Federal Reserve System the authority to modify the percentage values listed in (aa)(1)(A) and (B), and the Board has used this authority to reduce the value for (aa)(1)(A) to 8 percentage points for "first-lien" loans.
The court observes that Biggins was included in the Federal Rules Decisions despite the fact that the opinion was marked "not for citation" by its author.
A more fundamental problem is that the subsection excludes "residential mortgage transactions." 15 U.S.C. § 1602(aa)(1). This term includes "a transaction in which a . . . deed of trust . . . is created or retained against the consumer's dwelling to finance the acquisition . . . of such dwelling." 15 U.S.C. § 1602(w). Plaintiff explicitly alleges that the loan at issue in this suit was taken to finance her purchase of her home. SAC 11-12. Accordingly, the SAC does not support the inference that § 1639 imposed obligations applicable to this loan.
2. Other TILA Obligations
In opposing Greenpoint's motion, plaintiff argues that even if § 1639 does not apply, the SAC implicitly states a claim for violation of TILA's other disclosure obligations. Although plaintiff does not cite any particular statutory or regulatory provision, the court assumes that plaintiff refers to the obligations imposed by those portions of "Regulation Z" codified at 12 C.F.R. § 226.18.
This regulation requires a number of disclosures, including (for loans such as this one) the amount financed, the finance charge, the annual percentage rate, whether the loan includes a variable annual percentage rate, "the number, amounts, and timing of payments scheduled to repay the obligation," and the total of payments.
Because these disclosure obligations exist regardless of whether the loan falls within the scope of 15 U.S.C. § 1602(aa),see 12 C.F.R. § 226.17-18, Greenpoint's argument that the loan falls outside that subsection's scope does not warrant dismissal of the claim for failure to make these disclosures.
Admittedly, plaintiff and the court have clouded the issue by previously describing the disclosure requirements as rooted in 15 U.S.C. § 1639(a) and (b). Nonetheless, plaintiff has consistently, albeit generally, cited Regulation Z, and the federal pleading requirements do not generally require a complaint to articulate the precise legal theory upon which it rests, so long as some viable legal theory is apparent. McCalden v. California Library Ass'n, 955 F.2d 1214, 1223 (9th Cir. 1990),Balistreri, 901 F.2d at 699.
The court's prior discussion of equitable tolling as to claims of inadequate disclosures remains applicable regardless of whether the disclosure obligation arises under 15 U.S.C. § 1639 or 12 C.F.R. § 226.18. See Order filed May 7, 2010, at 14:5-16.
Although Regulation Z provides an alternate source of the obligation to make certain disclosures, plaintiff has identified no provision outside of HOEPA analogous to HOEPA's prohibition on "extending credit to consumers under mortgages . . . based on the consumers' collateral without regard to the consumers' repayment ability," 15 U.S.C. § 1639(h). Because plaintiff's loan falls outside the scope of 15 U.S.C. § 1602(aa), § 1639(h) does not apply, and the court dismisses plaintiff's TILA claim insofar as the claim is predicated on such a prohibition.
B. RESPA
The SAC's fourth claim is for violation of RESPA. Insofar as this claim is alleged against Greenpoint, it alleges that Greenpoint
violated the RESPA by . . . accepting fees, kickbacks or other things of value from the other Defendants pursuant to an agreement or understanding that business incident to or a part of a real estate settlement service involving federally related mortgage loans would be referred to other Defendants, in violation of 12 U.S.C. § 2607(a) and 24 C.F.R. § 3500.14(b) [and by] [g]iving or accepting a portion, split, or percentage of charges made or received for the rendering of real estate settlement services in connection with a transaction involving a federally related mortgage loan other than for services actually performed, in violation of 12 U.S.C. § 2607(b) and 24 C.F.R. § 3500.14(c).
SAC ¶ 53. The court previously rejected defendants' (including Greenpoint's) contention that this claim was untimely and that it failed for failure to allege actual damages. Order filed May 7, 2010 at 19-21.
Greenpoint now argues that this claim fails to satisfy Fed.R.Civ.P. 8 because it is a "threadbare recital[] of [the] cause of action's elements, supported by mere conclusory statements."Iqbal, 129 S.Ct. at 1940 (citing Twombly, 550 U.S. at 555). The SAC admittedly essentially parrots the language of 12 U.S.C. § 2607(a) and (b). Greenpoint argues that plaintiff must go beyond the statutory language, and that in this context, plaintiff must allege "what 'fees, kickbacks, or things of value' defendants allegedly provided to one another." Greenpoint's Mem. at 4-5. Mere use of the statute's language does not render a complaint inadequate. In Twombly and Iqbal, the statutes at issue were cast in legal terms, prohibiting "conspiracies" and "discrimination." Here, plaintiff has used the statutory language to allege that in one form or another, something of value changed hands in connection with, and implicitly at the time of, the initial loan transaction. This is a factual, rather than a legal, allegation, thereby falling outside the scope of the Court's recent reiteration of the inadequacy of conclusory legal allegations. The alleged facts provide sufficient detail to enable Greenpoint to answer. It appears that if these allegations are proven, plaintiff will have demonstrated a right to relief. Fed.R.Civ.P. 8, as interpreted by Twombly and Iqbal, requires no more.
C. Misrepresentation
The SAC's sixth claim alleges that Greenpoint fraudulently failed to verify plaintiff's income, caused the appraisal of the home to be inflated, misrepresented that the loan was the most advantageous loan for which plaintiff qualified, misrepresented the interest rate of the loan, misrepresented plaintiff's ability to afford the loan, and various other terms of the loan. SAC ¶ 60.
The SAC's allegations are substantially similar to those presented in the FAC. In evaluating whether the prior allegations satisfied Fed.R.Civ.P. 9(b), the court explained:
Plaintiff has largely specified the content of the alleged misrepresentations, and has identified these representations as having been made at the time and place the loan was negotiated (although this place is not further specified). Nonetheless, plaintiff brings these claims against three defendants, yet plaintiff fails to specify "the role of each defendant in each scheme." Lancaster Cmty. Hosp. v. Antelope Valley Hosp. Dist., 940 F.2d 397, 405 (9th Cir. 1991); see also Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007).
Order filed May 7, 2010 at 28. Although the court dismissed the claim because of the failure to specify the defendants' roles, the court did not hold that the allegations otherwise satisfied Fed.R.Civ.P. 9(b).
The only difference between the SAC's allegations and those found inadequate in the FAC is that the SAC alleges that Greenpoint made each misrepresentation. Greenpoint argues that this addition is insufficient to rectify the previously-identified defect, and relatedly that the allegations fail to provide the other details required by Rule 9.
On the first issue, Greenpoint argues that a plaintiff asserting a fraud claim against a corporation "must 'allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.'" Lazar v. Superior Court, 12 Cal. 4th 631, 645 (1996) (quoting Tarmann v. State Farm Mut. Auto. Ins. Co., 2 Cal. App. 4th 153, 157 (1991)). This is a rule of California pleading, which is not directly applicable in federal courts. Nonetheless, numerous district courts have followed this rule, at least insofar as to require identification of a particular speaker. See, e.g.,Saldate v. Wilshire Credit Corp., 686 F. Supp. 2d 1051, 1065 (E.D. Cal. 2010) (O'Neill, J.), Keen v. Am. Home Mortg. Servicing, Inc., 664 F. Supp. 2d 1086, 1099 (E.D. Cal. 2009) (Damrell, J.), Edejer v. DHI Mortg. Co., No. C 09-1302, 2009 U.S. Dist. LEXIS 52900, *36 (N.D. Cal. June 12, 2009). Here, although plaintiff has alleged that "Greenpoint" made various misrepresentations, plaintiff has not identified any particular speaker or particular communication.
The SAC's allegations fail to provide the specificity required by Rule 9. The purpose of this rule is "to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). "A pleading is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that the defendant can prepare an adequate answer from the allegations." Neubronner v. Milken, 6 F.3d 666, 671-72 (9th Cir. 1993). For many of the alleged misrepresentations, the SAC falls short of this mark. For example, plaintiff alleges that Greenpoint misrepresented that the plaintiff's loan "was the most advantageous loan for which Plaintiff qualified." SAC ¶ 60(a). This allegation fails to allege "the who, what, when, where, and how" of the fraud, elements that the Ninth Circuit has held are required. Vess, 317 F.3d at 1107. Merely alleging that these representations were made in connection with negotiation of the loan — a process alleged to have taken months — is insufficient. Rule 9(b) requires that the complaint include specificity to enable Greenpoint to prepare a response more detailed than to merely assert that no-one at Greenpoint ever made such a false representation.
More generally, plaintiff attempts to allege fraud by identifying mistaken beliefs that Greenpoint caused or permitted plaintiff to hold. SAC ¶ 60. To allege fraud, plaintiff must allege specific communications, rather than mistaken beliefs resulting from unspecified communications.
For only one alleged representation does plaintiff approach an allegation of the specific when, where, and how of the mispresentation. Plaintiff alleges that her "mortage application" represented that she would receive a 2 percent interest rate for 360 months. Plaintiff does not allege who developed this mortgage application, and thus, to whom this representation may be attributed. Accordingly, even as to this allegation, plaintiff must specify the "who" of this communication, at least by identifying where plaintiff received the application from and where she submitted it to.
Accordingly, the court again dismisses plaintiff's fraud allegations as to defendant Greenpoint. Although these allegations were previously dismissed, dismissal was on slightly different grounds, and as such, plaintiff has not conclusively demonstrated an inability to cure these defects. The court therefore dismisses the fraud and negligent misrepresentations claims against Greenpoint without prejudice.
D. Unlawful Competition
The SAC's ninth cause of action is for unfair competition. In the order filed May 7, 2007, the court held that this claim could proceed insofar as it was predicated on allegations of unlawful conduct, to wit, the allegations found to state claims under TILA and RESPA. In arguing that this claim should be dismissed, Greenpoint cites cases which held that when a complaint failed to state a claim under TILA or RESPA directly, the complaint could not use a violation of those statutes as a predicate for a UCL claim. Because plaintiff here has stated TILA and RESPA claims, the cited cases are inapplicable.
IV. Conclusion
For the reasons stated above, Greenpoint's motion to dismiss (ECF. No. 40) is GRANTED IN PART.
1. Plaintiff's claim under TILA is DISMISSED WITH PREJUDICE insofar as this claim seeks to enforce 15 U.S.C. § 1639. The TILA claim may proceed insofar as it is predicated on failure to make disclosures required by Regulation Z and to the extent consistent with the court's prior orders.
2. Plaintiff's claims for fraud and negligent misrepresentation by Greenpoint are DISMISSED WITHOUT PREJUDICE.
3. The court DENIES Greenpoint's motion as to plaintiff's claims under RESPA and Cal. Bus. Prof. Code § 17200.
IT IS SO ORDERED.
DATED: December 20, 2010.