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Burrows v. Orchid Island TRS

March 18, 2008


The opinion of the court was delivered by: Hon. Roger T. Benitez United States District Judge



Plaintiff Michael Burrows ("Burrows" or "Plaintiff") filed this lawsuit on August 9, 2007. See Doc. No. 1. On September 21, 2007, Defendant Golden Valley Lending Group, Inc. ("Golden Valley") filed a Motion to Strike. See Doc. No. 12. On October 9, 2007, Defendant Christine R. Smith ("Smith") filed a Motion to dismiss and a Motion to Strike, which closely mirror Golden Valley's Motions. See Doc. Nos. 17, 18. Finally, on November 9, 2007 Defendant Orchid Island TRS, LLC ("Orchid") also filed a Motion to Dismiss and a Motion to Strike. See Doc. Nos. 31, 32.

Presently, these motions are pending before the Court. For the reasons that follow, the Court GRANTS Defendants' Motions in part and DENIES them in part.


This case involves long and complex factual and procedural history. Plaintiff filed a Complaint with this Court on August 9, 2007. Plaintiff's Complaint contains fifteen causes of action. In his Complaint, Burrows alleges that Defendants engaged in predatory lending practices, falsified information on Plaintiff's loan application, and used bait-and-switch techniques to induce him to refinance and obtain a mortgage on his home at a higher interest rate, prepayment penalties, and duplicate closing fees.

Specifically, Plaintiff's Complaint states that Burrows purchased his home in 2004 for $295,000.00, obtaining first and second mortgages at 4.757% and 4% interest rates, respectively. At that time, Plaintiff's combined mortgage payments totaled $1,278.00. In 2007, Plaintiff received an advertising brochure from Defendants, "soliciting opportunities to refinance home loans and lower monthly mortgage payments." Plaintiff called the number on the brochure and spoke to Defendant Smith. Plaintiff informed Smith that he was only interested in refinancing if he could lower his monthly payments and obtain a 30-year fixed mortgage rate.

According to Plaintiff, Defendant Smith assured him she would help him secure a lower interest rate and a 30-year fixed mortgage. Soon after this conversation, Defendant Smith told Plaintiff that she "discovered the 'perfect' loan for him, that Plaintiff would receive $5,000.00 in cash as a rebate from the loan, and that a notary would be visiting Plaintiff's home the next day." Plaintiff complied with Smith's instructions and signed a loan application, which Smith had prepared for him.

After receiving a copy of his loan documents in the mail, however, Plaintiff discovered that he had entered into a 5-year negative amortization rate mortgage, at 7.94% interest rate, with prepayment penalties, and closing fees "amounting to more than $17,000, more than 5% of the value of the loan." Plaintiff's second mortgage on the new loan was at 10.36% interest rate.

Plaintiff alleges that he was unaware that he was actually refinancing at an interest rate that was higher than what he was paying before, and that he was only able to discover this fact after the right-to-cancel period on this new loan had expired. Plaintiff claims that Defendants Smith and Golden Valley were able to obtain a Yield Spread Premium in the amount of $2,880.00 by selling Plaintiff a 5-year negative amortization rate mortgage instead of the 30-year fixed mortgage he requested.

In his Complaint, Plaintiff also states that Defendant Smith instructed him to backdate his loan application. Smith further overstated Burrows' income on the application -- doubling the amount of his $3,200-per-month income. The Good Faith Estimate, which Plaintiff received prior to closing on the loan, indicated that Plaintiff's monthly mortgage payments would be fixed at $1,798.65. After signing the loan documents provided to him by Smith, however, Plaintiff subsequently discovered that his new monthly mortgage payment was significantly higher than the one listed on the Good Faith Estimate -- $2,481.81.

Initially, Plaintiff named four Defendants in this lawsuit: Smith, Golden Valley, NLC, and Orchid.*fn1 On January 24, 2008, however, Defendant First NLC Financial Services, LLC ("NLC"), filed a Notice of Automatic Stay due to pending bankruptcy proceedings. Doc. No. 44. On February 15, 2008, the Court stayed this action, upon determining that the Complaint against Defendant NLC is "inextricably interwoven" with Plaintiff's claims against the other Defendants, and the allegations overall "present[] common questions of law and fact, which can be resolved in one proceeding." See, e.g., Federal Life Ins. Co. (Mut.) v. First Financial Group of Texas, Inc., 3 B.R. 375, 376 (S.D. Tex. 1980). Thereafter, Plaintiff filed a Notice of Voluntary Dismissal, without prejudice, of Defendant NLC. Doc. No. 47. On February 29, 2008, the Court issued an Order lifting the stay. Doc. No. 50.

Presently pending before the Court are five motions: (1) Defendant Golden Valley's Motion to Strike; (2) Defendant Smith's Motion to Dismiss; (3) Defendant Smith's Motion to Strike; (4) Defendant Orchid's Motion to Dismiss; and (5) Defendant Orchid's Motion to Strike.


A. Standard of Review

"A Rule 12(b)(6) motion tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 338 (9th Cir. 1996). In deciding a motion to dismiss for failure to state a claim, the Court must accept all material allegations of the Complaint as true, "as well as all reasonable inferences to be drawn from them." Navarro, 250 F.3d at 732 (internal citations omitted). "To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations; rather, it must plead 'enough facts to state a claim to relief that is plausible on its face.'" Weber v. Department of Veterans Affairs, 512 F.3d 1178, 1181 (9th Cir. 2008) (citing Bell Atlantic Corp. v. Twombly, --- U.S. ----, 127 S.Ct. 1955, 1974 (2007)).

"Dismissal is proper only where there is no cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal theory." Navarro, 250 F.3d at 732 (citing Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988)). Finally, the Court may strike from the pleadings "an insufficient defense or ...

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