Summary
In Morgera, this court explained that “[u]nder the mortgage contract, MERS has the legal right to foreclose on the debtor's property.
Summary of this case from Magdaleno v. IndyMac Bancorp, Inc.Opinion
No. 2:09-cv-01476-MCE-GGH.
January 11, 2010
MEMORANDUM AND ORDER
Plaintiff Erica Morgera ("Plaintiff") seeks monetary relief from Defendants for claims arising under the federal Truth in Lending Act ("TILA"), California Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), the federal Real Estate Settlement Procedures Act ("RESPA"), and California's Unfair Competition Law ("UCL").
Plaintiff also alleges state law claims of negligence, breach of fiduciary duty, fraud, breach of contract, breach of the implied covenant of good faith and fair dealing, and wrongful foreclosure.
Presently before the Court is a Motion by Defendants Countrywide Home Loans, Inc. ("Countrywide"), ReconTrust Company, N.A. ("ReconTrust"), and Mortgage Electronic Registration Systems, Inc. ("MERS") (collectively "Defendants") to Dismiss Plaintiff's Second, Third, Fourth, Sixth, Seventh, and Tenth Claims for failure to state a claim upon which relief may be granted pursuant to Federal Rule of Civil Procedure 12(b)(6) In addition, Defendants move to strike Plaintiff's request for punitive damages pursuant to Rule 12(f). For the reasons set forth below, Defendants' Motion to Dismiss will be granted.
Unless otherwise stated, all further references to a Rule are to the Federal Rules of Civil Procedure.
Because oral argument would not be of material assistance, the Court ordered this matter submitted on the briefs. E.D. Cal. Local Rule 78-230(h).
BACKGROUND
This action arises out of activity surrounding a residential loan transaction for the property located at 3561 Debina Way, Rancho Cordova, Sacramento, CA ("Property").In April 2007, Defendant Daniel Klemesrud, as a loan officer for Defendant Hilltop Financial Mortgage, approached Plaintiff and solicited her to purchase her residence. Klemesrud advised Plaintiff that he could get her the "best deal" with the "best interest rates" available on the market.
Plaintiff's First Amended Complaint states that Klemesrud solicited her "to purchase her residence." However, Plaintiff's Opposition states that Klemesrud solicited her "to refinance her residence." This discrepancy does not affect the Court's decision.
Klemesrud promised Plaintiff an affordable loan with a fixed rate, however he actually sold Plaintiff two loans. The first mortgage loan was an interest-only adjustable rate loan with an initial rate of 7.375% that adjusted to 13.375% with a prepayment penalty. The second mortgage loan was a fixed interest rate and included a prepayment penalty as well. Plaintiff further alleges that Klemesrud advised Plaintiff that if the loans ever become unaffordable, he would simply refinance it into an affordable loan.
To qualify Plaintiff for these loans, Klemesrud allegedly overstated Plaintiff's income on the loan application without Plaintiff's knowledge or consent. Additionally, because Plaintiff did not have the necessary funds for a down payment in order to obtain the loan, Klemesrud allegedly contacted the seller of the Property and obtained $17,000.00 for the down payment. Plaintiff alleges that Klemesrud either hid or conspired with the underwriters in order to ensure approval of Plaintiff's loan.
On June 25, 2007, Plaintiff completed the loans on the Property. The terms of the loans were memorialized in two Promissory Notes, which were secured by two Deeds of Trust on the Property. The Deeds of Trust identified Stewart Title of Sacramento as Trustee, and Defendant Pacific First Financial Services, L.P. as the Lender. Both Deeds of Trust also identified MERS as nominee for the Lender and the Lender's successors and assigns, and as the beneficiary.
Plaintiff alleges that she was not informed of the actual terms of the loans being sold to her until recently because she was not given a copy of any of the loan documents prior to closing. Furthermore, Plaintiff alleges that she was only given a few minutes to sign the documents. Plaintiff asserts that the notary did not explain any of the loan documents to Plaintiff, nor was Plaintiff allowed to review such documents. Rather, Plaintiff was simply told to sign and initial the loan. Plaintiff further alleges that she was not provided with the requisite copies of a proper notice of cancellation.
On January 30, 2009, a Substitution of Trustee was issued by MERS in its capacity as beneficiary under Plaintiff's first Deed of Trust substituting ReconTrust as trustee. On January 30, 2009, ReconTrust, in its capacity as agent to MERS as a beneficiary, issued a Notice of Default and Election to Sell Under Deed of Trust ("NOD"). This NOD was recorded in the Office of the Recorder for Sacramento County, California, on February 3, 2009.
Plaintiff alleges that on April 3, 2009, a Qualified Written Request ("QWR") under RESPA was mailed to Countrywide demanding to rescind the loan under TILA provisions. Plaintiff states that Countrywide never properly responded to the QWR.
STANDARD
A. Motion to Dismiss
On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the "grounds" of his "entitlement to relief" requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) (internal citations and quotations omitted). Factual allegations must be enough to raise a right to relief above the speculative level. Id. at 555 (citing 5 C. Wright A. Miller, Federal Practice and Procedure § 1216, pp. 235-236 (3d ed. 2004) ("The pleading must contain something more . . . than . . . a statement of facts that merely creates a suspicion [of] a legally cognizable right of action").
If the court grants a motion to dismiss a complaint, it must then decide whether to grant leave to amend. The court should "freely give[]" leave to amend when there is no "undue delay, bad faith[,] dilatory motive on the part of the movant, . . . undue prejudice to the opposing party by virtue of . . . the amendment, [or] futility of the amendment. . . ." Fed.R.Civ.P. 15(a);Foman v. Davis, 371 U.S. 178, 182 (1962). Generally, leave to amend is only denied when it is clear that the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992).
B. Motion to Strike
The Court may strike from a pleading "an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). Motions to strike are a drastic remedy and generally disfavored. 5C Wright A. Miller, Federal Practice and Procedure § 1380 (3d ed. 2004). Immaterial matter is that which has no essential or important relationship to the claim for relief or the defenses being pled. Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, 510 U.S. 517, 114 S. Ct. 1023, 127 L. Ed. 2d 455 (1994) (internal citations and quotations omitted).
A matter is impertinent if the statements do not pertain, and are not necessary, to the issues in question. Id. "Scandalous" matters "cast a cruelly derogatory light on a party or other person." In re 2TheMart.com, Inc. Sec. Litig., 114 F. Supp. 2d 955, 965 (C.D. Cal. 2000); see, e.g., Alvarado-Morales v. Digital Equip. Corp., 843 F.2d 613 (1st Cir. 1988) (striking the terms "brainwashing" and "torture" in a tort case in the employment context).
ANALYSIS
A. California's Rosenthal Act
Plaintiff's second cause of action alleges that Defendants Countrywide and MERS violated California's Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), Cal. Civ. Code §§ 1788 et seq., by threatening to take actions not permitted by law, including but not limited to: collecting on a debt not owed to the Defendants, making false reports to credit reporting agencies, foreclosing upon a void security interest, foreclosing upon a note of which they were not in possession nor otherwise entitled to payment, falsely stating the amount of debt, increasing the amount of debt by including amounts that are not permitted by law or contract, and using unfair and unconscionable means to collect a debt.
The purpose of the RFDCPA is "to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts, and to require debtors to act fairly in entering into and honoring such debts." Cal. Civ. Code § 1788.1. California courts have declined to regard a residential mortgage loan as a `debt' under the RFDCPA. See Cal. Civ. Code § 1788.2(e)-(f); Pittman v. Barclays Capital Real Estate, Inc., No. 09CV0241, 2009 WL 1108889, at *3 (S.D. Cal. April 24, 2009) (dismissing plaintiff's mortgage-related RDFCPA claim for failing to "invoke statutory protections"); Ines v. Countrywide Home Loans, Inc., No. 08cv1267, 2008 WL 4791863, at *3 (S.D. Cal. 2008) (stating plaintiff's mortgage debt claim did not fall within the meaning of the RFDCPA); Castaneda v. Saxon Mortg. Services, Inc., No. 2:09cv01124, 2009 WL 4640673, at *3 (E.D. Cal. Dec. 3, 2009) (holding that a foreclosure pursuant to a deed of trust does not constitute a debt collection under the RFDCPA). As such, a foreclosure does not qualify as an unfair debt collection.
The behavior Plaintiff complains of arises out of or exist in connection to Plaintiff's residential loan mortgage. As the courts have repeatedly held, the collection of this debt does not fall under the purview of the RFDCPA.
Defendants' Motion to Dismiss Plaintiff's RFDCPA claim is therefore granted.
C. Negligence
Plaintiff's third claim alleges negligence against all Defendants. Plaintiff alleges that the Defendants "owed a general duty to the Plaintiff to perform acts in such a manner as to not cause Plaintiff harm" and that such a duty was breached when Defendants "failed to maintain the original Mortgage Note, failed to properly create original documents, failed to make the required disclosures to the Plaintiff and instituted foreclosure proceedings wrongfully." Plaintiff further alleges that Defendants breached their duty of care to Plaintiff "when they took payments to which they were not entitled, charged fees they were not entitled to charge, and made or otherwise authorized negative reporting of Plaintiff['s] creditworthiness to various credit bureaus wrongfully."
In order to state a cause of action for negligence, a plaintiff must allege: (1) the defendant has a legal duty to use due care; (2) the defendant breached such legal duty; (3) the defendant's breach was the proximate or legal cause of the resulting injury; and (4) damage to the plaintiff. Ladd v. County of San Mateo, 12 Cal. 4th 913, 917 (1996). The existence of a legal duty on the part of the defendant is a question of law to be determined by the court. Kentucky Fried Chicken of California, Inc. v. Superior Court, 14 Cal. 4th 814, 819 (1997); Isaacs v. Huntington Memorial Hospital, 38 Cal. 3d 112, 124 (1985).
When not provided by statute, the existence of such a duty depends upon the foreseeability of the risk and a weighing of policy considerations for and against the imposition of liability. Jacoves v. United Merchandising Corp., 9 Cal. App. 4th 88, 105 (1992).
"[A]s a general rule, a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money." Nymark v. Heart Fed. Sav. Loan Ass'n, 231 Cal. App. 3d 1089, 1095-96 (1991) (affirming summary judgment in favor of defendant lending institution because defendant owed no duty to plaintiff in conducting its loan processing procedures); see Wagner v. Benson, 101 Cal. App. 3d 27, 35 (1980) ("Liability to a borrower for negligence arises only when the lender `actively participates' in the financed enterprise `beyond the domain of the usual money lender.'"). However, the analysis does not stop there. Rather, California courts look to six factors in determining whether a financial institution owes a duty of care to a borrower-client. These facts are: "[1] the extent to which the transaction was intended to affect the plaintiff, [2] the foreseeability of harm to him, [3] the degree of certainty that the plaintiff suffered injury, [4] the closeness of the connection between the defendant's conduct and the injury suffered, [5] the moral blame attached to the defendant's conduct, and [6] the policy of preventing future harm." Id. at 1098; Knox v. Ameriquest Mortg. Co., No. C0500240, 2005 WL 1910927 (N.D. Cal. Aug. 10, 2005) (holding that the fifth factor alone was enough to establish a duty of care where plaintiffs had asserted allegations of intentional document forgery).
Plaintiff alleges that Defendants are "diversified financial marketing and/or services corporations engaged primarily in residential mortgage banking and/or related business." As financial institutions, Defendants owed no duty of care to Plaintiff. Plaintiff has not provided the Court with any statute creating a duty, or a special relationship giving rise to a duty between mortgagors and a lending institution (Countrywide), a trustee (ReconTrust), or a beneficiary (MERS).
Defendants' involvement in the loan transaction falls far short of the active participation necessary to give rise to liability.Connor v. Great Western Sav. Loan Ass'n, 69 Cal. 2d 850, 864 (1968) (finding a duty of care where lender exercised extensive control and shared profits).
Defendants' Motion to Dismiss Plaintiff's negligence claim is therefore granted.
D. Real Estate Settlement Procedures Act ("RESPA")
Plaintiff's fourth claim alleges that Countrywide violated the RESPA, 12 U.S.C. § 2605(e)(2), by failing and refusing to provide a proper written explanation or response to Plaintiff's alleged qualified written request ("QWR"). Plaintiff alleges that on April 3, 2009, a QWR was mailed to Countrywide and that Countrywide has yet to properly respond to such request.
RESPA requires mortgage loan servicers who receive a "qualified written request" for information relating to the servicing of a loan to provide a written response acknowledging receipt of the correspondence within 20 days. 12 U.S.C. § 2605(e)(1)(A). For the purposes of the Act, a QWR "shall be a written correspondence [] that . . . includes a statement of the reasons for the belief of the borrower, to the extent applicable, that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower." 12 U.S.C. § 2605(e)(1)(B).
Although Plaintiff describes her letter as QWR, she fails to allege any facts which qualify it as such. Plaintiff has not alleged that she was seeking information about her account or that she was attempting to correct an error. Plaintiff states only that her QWR included a demand to rescind the loan pursuant to TILA provisions. However, a letter demanding rescission is simply that, a rescission letter. It does not amount to a QWR invoking the protection of RESPA.
As such, Plaintiff fails to state a claim for violation of RESPA. Defendants' Motion to Dismiss Plaintiff's RESPA claim is granted.
E. Fraud
Plaintiff's sixth claim is for fraud. Plaintiff alleges that Countrywide committed fraud when it "misrepresented to Plaintiff that [Countrywide] has the right to collect monies from Plaintiff on its behalf or on behalf of others when Defendant [Countrywide] has no legal right to collect such monies." Plaintiff alleges that MERS "misrepresented to Plaintiff on the Deed of Trust that it is a qualified beneficiary with the ability to assign or transfer the Deed of Trust and/or the Note and/or substitute trustees under the Deed of Trust."
Additionally, Plaintiff alleges that ReconTrust "misrepresented to Plaintiff that [it] was entitled to enforce the security interest and has the right to institute a non-judicial foreclosure proceeding under the Deed of Trust when they filed a Notice of Default on February 3, 2009." Plaintiff thus contends that ReconTrust "did not have the right to initiate foreclosure proceeding herein under California Civil Code § 2924 et seq."
In California the required elements of fraud are "a) misrepresentation; b) knowledge of falsity; c) intent to defraud; d) justifiable reliance; and e) resulting damage." In re Estate of Young, 160 Cal. App. 4th 62, 79 (2008) (citation omitted). A claim for fraud requires a heightened pleading standard in which the allegations must be "specific enough 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). Statements of the time, place and nature of the alleged fraudulent activities are sufficient, Id. at 735, provided the plaintiff sets forth "what is false or misleading about a statement and why it is false." In re GlenFed, Inc., Securities Litigation, 42 F.3d 1541, 1548 (9th Cir. 1994).
Here that standard has not been met. Plaintiff has not provided the time, place, or nature of the alleged misrepresentations. Most importantly, Plaintiff has failed to allege what is false or misleading about Defendants' statements and why they are false. Simply alleging that Defendants' "misrepresented" themselves is insufficient. Plaintiff's pleading does not meet the heightened standard necessary for a fraud claim.
Defendants' Motion to Dismiss Plaintiff's fraud claim is therefore granted.
F. Violation of California's Unfair Competition Law
Plaintiff's seventh claim alleges Defendants' acts "constitute unlawful, unfair, and/or fraudulent business practices, as defined in the California Business and Professions Code § 17200 et seq."
California Business and Professions Code § 17200 et seq., more commonly known as California's Unfair Competition Law ("UCL") defines unfair competition as "any unlawful, unfair or fraudulent business act or practice. . . ." Cal. Bus. Prof. Code § 17200.
"Unlawful" practices are practices "forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulation, or court-made." Saunders v. Superior Court, 27 Cal. App. 4th 832, 838-39 (1994) (citing People v. McKale, 25 Cal. 3d 626, 632 (1979)). To state a cause of action based on an "unlawful" business act or practice under the UCL, a plaintiff must allege facts sufficient to show a violation of some underlying law. McKale, 25 Cal.3d at 635. A business act or practice is "unfair" when the conduct "threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to a violation of the law, or that otherwise significantly threatens or harms competition." Cel-Tech Communications, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 187 (1999). To sufficiently plead an action based on an "unfair" business act or practice, a plaintiff must allege facts showing the "unfair" nature of the conduct and that the harm caused by the conduct outweighs any benefits that the conduct may have. Motors, Inc. v. Times Mirror Co., 102 Cal. App. 3d 735, 740 (1980) ("[S]ince the complaint is unlikely to reveal defendant's justification, if th[e] pleading states a prima facie case of harm, . . . the defendant should be made to present its side of the story."). A "fraudulent" business act or practice is one in which members of the public are likely to be deceived. Hall v. Time, Inc., 158 Cal. App. 4th 847, 849 (2008); Olsen v. Breeze, 48 Cal. App. 4th 608, 618 ("`Fraudulent,' as used in the statute, does not refer to the common law tort of fraud but only requires a showing members of the public `are likely to be deceived.'" (citations omitted)).
Thus, in order to state a cause of action based on a "fraudulent" business act or practice, the plaintiff must allege that consumers are likely to be deceived by the defendant's conduct. Committee on Children's Television, Inc. v. General Foods Corp., 35 Cal. 3d 197, 212 (1983).
In alleging violation of the UCL, Plaintiff incorporates by reference all prior causes of actions, however none of those claims have been sufficiently plead to survive a motion to dismiss. Plaintiff therefore lacks a predicate "unlawful" action to underlie her UCL claim.
Similarly she fails to allege with reasonable particularity "unfair" or "fraudulent" behavior by Defendants. Plaintiff asserts that "unlawful, unfair, and/or fraudulent business practices" have occurred but she does not identify which specific behaviors she believes are punishable under the UCL. To the extent to which she may be referring to all alleged wrongful conduct listed in the Complaint, Plaintiff still fails to state why such behavior is "unfair" or "fraudulent" as defined by the statute.
Due to Plaintiff's failure to sufficiently plead unlawful, unfair or fraudulent behaviors, Defendants' Motion to Dismiss Plaintiff's UCL claim is granted.
G. Wrongful Foreclosure
Plaintiff's tenth claim alleges wrongful foreclosure. Specifically, Plaintiff alleges that Defendants "were not, and are not, in possession of the Note, are not beneficiaries, assignees or employees of the person or entity in possession of the Note, and are not otherwise entitled to payment." Plaintiff further alleges that Defendants "are not `person[s] entitled to enforce' the security interest in the Property, as that term is defined in [California] Commercial Code § 3301."
California Civil Code §§ 2924- 2924i govern non-judicial foreclosures. California courts have consistently held that the Civil Code provisions "cover every aspect" of the foreclosure process, I.E. Associates v. Safeco Title Ins. Co., 39 Cal. 3d 281, 285 (1985), and are "intended to be exhaustive," Moeller v. Lien, 25 Cal. App. 4th 822, 834 (1994). As such, Plaintiff's reliance on Cal. Comm. Code § 3301 is misplaced. Pursuant to § 2924(a)(1) of the California Civil Code, a "trustee, mortgagee or beneficiary or any of their authorized agents" may conduct the foreclosure process. There is no requirement that the party initiating non-judicial foreclosure proceedings be in possession of the original note. See, e.g., Candelo v. NDEX West, LLC, No. CV F 08-1916, 2008 WL 5382259, at *4 (E.D. Cal. Dec. 23, 2008) ("No requirement exists under statutory framework to produce the original note to initiate non-judicial foreclosure."); Putkkuri v. Recontrust Co., No. 08cv1919, 2009 WL 32567, at *2 (S.D. Cal. Jan. 5, 2009) ("Production of the original note is not required to proceed with a non-judicial foreclosure.").
Furthermore, a defaulted borrower is "required to allege tender of the amount of [the lender's] secured indebtedness in order to maintain any cause of action for irregularity in the sale procedure." Abdallah v. United Savings Bank, 43 Cal. App. 4th 1101, 1109 (1996). Therefore, an action to set aside a foreclosure sale, unaccompanied by an offer to tender, does not state a cause of action which a court of equity recognizes.Karlsen v. American Sav. Loan Ass'n, 15 Cal. App. 3d 112, 117 (1981).
Plaintiff argues that tender is not required when it would be inequitable to do so. However, Plaintiff has not explained how an offer to tender would be inequitable in the current circumstances. Therefore, regardless of whether or not Defendants were entitled to conduct the foreclosure process, the Plaintiff has not offered to tender, and thus, her claim for wrongful foreclosure must fail.
As for Plaintiff's argument that MERS lacked standing to proceed with its non-judicial foreclosure, it too lacks legal merit. Courts have consistently found that MERS does in fact have standing to foreclose as the nominee of the lender. See, e.g.,Trent v. Mortgage Elec. Registration Sys., Inc., 288 Fed. Appx. 571 (11th Cir. 2008) (unpublished); Mortgage Elec. Registration Sys., Inc. v. Azize, 965 So. 2d 151 (Fla. App. 2 Dist. 2007);Mortgage Elec. Registration Sys., Inc. v. Revoredo, 955 So. 2d 33 (Fla. App. 3 Dist. 2007); In re Huggins, 357 B.R. 180 (Bankr. D. Mass. 2006); In re Sina, No. A06-200, 2006 WL 2729544 (Minn. Ct. App. Sept. 26, 2006) (unpublished); Mortgage Elec. Registration Sys., Inc. v. Ventura, No. CV 054003168S, 2006 WL 1230265 (Conn. Super. Ct. April 20, 2006) (unpublished); Mortgage Elec. Registration Sys., Inc. v. Leslie, No. CV044001051, 2005 WL 1433922 (Conn. Super. Ct. May 25, 2005) (unpublished).
Under the mortgage contract, MERS has the legal right to foreclose on the debtor's property. The fact that MERS, the mortgagee, lacked a beneficial interest in the note that was secured by the mortgage does not deprive MERS of standing to enforce the note and foreclose the mortgage. Trent, 288 Fed. Appx. at 572. MERS is the owner and holder of the note as nominee for the lender, and thus MERS can enforce the note on the lender's behalf. Azize, 965 So. 2d at 153-54.
CONCLUSION
For the foregoing reasons, Defendants' Motion to Dismiss Plaintiff's First Amended Complaint (Docket No. 19) is GRANTED with leave to amend. Defendants' Motion to Strike is DENIED as moot.
Plaintiff may file an amended complaint not later than twenty (20) days after the date this Memorandum and Order is filed electronically.
If no amended complaint is filed within said twenty (20)-day period, without further notice, Plaintiff's remaining claims will be dismissed without leave to amend.
IT IS SO ORDERED.