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Brewer v. Indymac Bank

March 16, 2009

BRIAN K. BREWER AND SUZANNE L. BREWER, PLAINTIFFS,
v.
INDYMAC BANK, RESIDENTIAL MORTGAGE CAPITAL, JAMES CHAPMAN, DEFENDANTS.



The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge

MEMORANDUM AND ORDER

On August 29, 2008, plaintiffs Brian K. Brewer and Suzanne L. Brewer (collectively "plaintiffs") filed their first amended complaint ("FAC") for damages and injunctive relief against defendants Indymac Bank ("Indymac"), Residential Mortgage Capital ("RMC"), and James Chapman ("Chapman"). This matter is before the court on defendants RMC and Chapman's (collectively "defendants") motions to dismiss plaintiffs' FAC for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6)*fn1 and for failure to join a necessary party pursuant to Rule 12(b)(7) and Rule 19. Plaintiffs oppose the motions. For the reasons set forth below, defendants' motion to dismiss is GRANTED in part and DENIED in part.*fn2 In the alternative, defendants file a motion for a more definite statement pursuant to Rule 12(e) and a motion to strike pursuant to Rule 12(f). For the reasons set forth below, defendants' motion for a more definite statement and motion to strike are DENIED.

BACKGROUND

This is a mortgage fraud action in which plaintiffs allege that Indymac, RMC, and Chapman failed to disclose the material terms of plaintiffs' loans, unlawfully obtained higher loan origination fees from plaintiffs, and transferred plaintiffs' loans through a sham transaction through which RMC unlawfully made a "secret profit." (First Am. Compl. ("FAC"), filed Aug. 29, 2008, ¶¶ 34-39.) Plaintiffs allege that on or about May 17, 2005, plaintiffs entered into a consumer credit transaction with RMC whereby plaintiffs obtained two loans for the financing of residential property. (FAC ¶ 14.) Plaintiffs allege that upon consummation of the loans, RMC was required to provide plaintiffs with certain financial disclosures, specifically the "amount financed," the "finance charges," and notice of an optional three-day rescission period, pursuant to the Truth in Lending Act, 15 U.S.C. § 1601, et seq. ("TILA"). (Id. ¶¶ 15-18).

Plaintiffs allege, however, that RMC inaccurately reported the amount financed, collected finance charges that were not disclosed to plaintiffs, and failed to provide plaintiffs with dated copies of their notice of right to rescind the loans, all in violation of TILA. (Id. ¶¶ 29-30, 33-36).

Plaintiffs further allege that RMC devised a scheme with Indymac whereby RMC transferred plaintiffs' loans to Indymac and received a "secret profit" in direct contravention of federal law and fiduciary duties owed to plaintiffs. (Id. ¶¶ 36-40.) According to plaintiffs, RMC acted as plaintiffs' mortgage broker and thus owed plaintiffs a fiduciary duty. (Id. ¶¶ 37-40). Plaintiffs allege that in securing plaintiffs' loans, RMC and Indymac engaged in a "table funded" transaction*fn3 designed to circumvent the Federal Real Estate Settlement Procedures Act, 12 U.S.C. § 2601, et seq. ("RESPA"). (Id. ¶ 38.) Plaintiffs further allege that although the loans were table funded by RMC, RMC attempted to secure "holder in due course" status by disguising the table funded transaction as a secondary market transaction. (Id.) Through this course of conduct, defendants purposefully attempted to thwart the provisions of RESPA designed to protect debtor consumers. (Id.) Plaintiffs allege that as payment for securing plaintiffs' loans and in direct violation of RESPA, RMC received a secret profit from Indymac that RMC failed to disclose to plaintiffs, despite RMC's fiduciary duty to do so. (Id. ¶¶ 36-37.)

Additionally, plaintiffs allege that they contacted Indymac regarding their right to rescind the loan agreements, yet Indymac did not comply with the provisions of TILA permitting plaintiffs to rescind the loans. (Id. ¶¶ 24-28.) By letter dated April 13, 2008, plaintiffs notified Indymac that they were provided with a deficient notice of right to rescind by RMC. (Id. ¶ 24.) At this time, plaintiffs informed Indymac that they preferred to settle the matter with Indymac rather than rescind the loans. (Id.) Plaintiffs did not hear back from Indymac, and on May 7, 2008, plaintiffs, through counsel, notified Indymac that due to the defect in the notice of right to rescind provided by RMC, plaintiffs were electing to rescind the loans. (Id. ¶ 25.) As required by TILA, plaintiffs tendered the real property to Indymac, but Indymac only responded with a "rescission implementation agreement" as to the first loan, and failed to rescind the second loan. (Id. ¶¶ 25-28.) Although the rescission implementation agreement provides that Indymac is the lender, plaintiffs instead assert that an unascertainable third party currently holds the loans. (Id. ¶ 28.)

Due to the foregoing, plaintiffs allege that they are entitled to rescind the loan agreements and obtain damages for defendants' unlawful and inequitable conduct.

STANDARDS

I. Motion to Dismiss for Failure to State a Claim

On a motion to dismiss, the allegations of the complaint must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322 (1972). The court is bound to give plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). Thus, the plaintiff need not necessarily plead a particular fact if that fact is a reasonable inference from facts properly alleged. See id.

Nevertheless, 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). Moreover, 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).

Ultimately, the court may not dismiss a complaint in which the plaintiff has alleged "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1974 (2007). Only where a plaintiff has not "nudged [his or her] claims across the line from conceivable to plausible," is the complaint properly dismissed. Id. "[A] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002) (quoting Hudson v. King & Spalding, 467 U.S. 69, 73 (1984)).

In ruling upon a motion to dismiss, the court may consider only the complaint, any exhibits thereto, and matters which may be judicially noticed pursuant to Federal Rule of Evidence 201.

See Mir v. Little Co. Of Mary Hospital, 844 F.2d 646, 649 (9th Cir. 1988); Isuzu Motors Ltd. v. Consumers Union of United States, Inc., 12 F. Supp. 2d 1035, 1042 (C.D. Cal. 1998).

II. Motion to Dismiss for Failure to Join Necessary and Indispensable Parties

Rule 12(b)(7) authorizes a motion to dismiss the action for failure to join a necessary party in accordance with Rule 19. Rule 12(b)(7) permits a motion to dismiss where there is an absent person without whom complete relief cannot be granted or whose interest in the dispute is such that to proceed in that person's absence might prejudice that individual or entity or the parties already before the court. In re Republic of Philippines, 309 F.3d 1143, 1152 (9th Cir. 2002). The analysis under Rule 19 generally proceeds in two steps: 1) the court asks whether a party is necessary to the suit; and 2) if so, and that party cannot be joined, the court must assess whether the party is "indispensable" so that "in equity and good conscience" the suit should be dismissed. Shermoen v. U.S., 982 F.2d 1312, 1317 (9th Cir. 1992). "In determining whether a party is 'necessary' under Rule 19(a), the court must consider whether 'complete relief' can be accorded among the existing parties, and whether the absent party has a 'legally protected interest' in the subject of the suit." Id. (quoting Rule 19(a)). The inquiry is fact specific, and the moving party "has the burden of persuasion in arguing for dismissal." Id.

III. Motion for a More Definite Statement

A motion for a more definite statement should not be granted unless a pleading is "so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading." Rule 12(e). This liberal standard is consistent with Rule 8(a)(2) which allows pleadings that contain a "short and plain statement of the claim." The Federal Rules of Civil Procedure anticipate that the parties will familiarize themselves with the claims and ultimate facts through the discovery process. See Famolare, Inc. v. Edison Brothers Stores, Inc., 525 F. Supp. 940, 949 (E.D. Cal. 1981). Indeed, "where the information sought by the moving party is available and/or properly sought through discovery, the motion should be denied." Id.

IV. Motion to Strike

Rule 12(f) enables the court by motion by a party or by its own initiative to "order stricken from any pleading . . . any redundant, immaterial, impertinent, or scandalous matter." The function of a 12(f) motion is to avoid the time and expense of litigating spurious issues. Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev'd on other grounds, 510 U.S. 517 (1994); see also 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1380 (2d ed. 1990).

Rule 12(f) motions are generally viewed with disfavor and not ordinarily granted because they are often used to delay and because of the limited importance of the pleadings in federal practice. Bureerong v. Uvawas, 922 F. Supp. 1450, 1478 (C.D. Cal. 1996). A motion to strike should not be granted unless it is absolutely clear that the matter to be stricken could have no possible bearing on the litigation. Lilley v. Charren, 936 F. Supp. 708, 713 (N.D. Cal. 1996).

ANALYSIS

I. Motion to Dismiss

Defendants seek to dismiss all claims alleged by plaintiffs against RMC and Chapman. Specifically, plaintiffs' Second, Fifth, Sixth, Seventh, Tenth, Eleventh, Twelfth, and Thirteenth Claims for Relief.

A. Plaintiffs' Second Claim for Relief

Plaintiffs' Second Claim for Relief alleges that defendants violated TILA by 1) failing to provide plaintiffs with valid copies of the notice of right to rescind, and 2) inaccurately reporting finance charges, the amount financed, and the annual percentage rate in the required financial disclosures for the first loan agreement. (FAC ¶¶ 63-64.) Plaintiffs seek rescission of the loan agreements, actual and statutory damages, and attorney fees. Defendants move to dismiss plaintiffs' TILA claim on the basis that it is time barred.

The declared purpose of TILA is "to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices." 15 U.S.C. § 1601(a). Consequently, TILA mandates that creditors provide borrowers with clear and accurate disclosures of borrowers' rights, finance charges, the amount financed, and the annual percentage rate. See, e.g., U.S.C. §§ 1632, 1635, 1638.

15 U.S.C. § 1635(a) provides that in the case of a consumer credit transaction in which the creditor acquires a security interest in property to be used as the principal residence of the obligor, the obligor "shall have the right to rescind the transaction until midnight of the third business day following the consummation of the transaction or the delivery of the information or rescission forms." An obligor who exercises their right to rescind "is not liable for any finance or other charge, and any security interest given by the obligor, including any such interest arising by operation of law, becomes void upon rescission." Id. at § 1635(b). However, where the required forms and disclosures have not been delivered to the obligor, 15 U.S.C. § 1635(f) provides that "[a]n obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first." The expiration of the three year statute of repose deprives a court of subject matter jurisdiction to order rescission. Miguel v. Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002).

To exercise the right to rescind, the obligor must "notify the creditor of the rescission by mail, telegram, or other means of written communication." 12 C.F.R. ยง 226.23(a)(2). Notice is deemed effective "when mailed, when filed for telegraphic transmission or, if sent by other means, when delivered to the creditor's designated place of business." Id. Within 20 days of receiving notice of rescission, "the creditor shall return to the obligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest ...


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