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Watson v. MTC Financial

July 17, 2009

MILFORD WATSON, PLAINTIFF,
v.
MTC FINANCIAL, INC., DBA TRUSTEE CORPS, A CALIFORNIA CORPORATION; INDYMAC BANK, F.S.B., A FEDERALLY CHARTERED SAVINGS BANK; MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; AND DOES 1 THROUGH 20, INCLUSIVE, DEFENDANTS.



ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

Plaintiff Milton Watson ("Plaintiff") brought this action in state court against Defendants MTC Financial, Inc. ("MTC Financial"), IndyMac Bank, F.S.B. ("IndyMac"), and Mortgage Electronic Registration Systems, Inc. ("MERS") (collectively, "Defendants") alleging various state and federal claims relating to a loan Plaintiff obtained in order to purchase a home in Sacramento, California. The action was removed to this Court pursuant to 28 U.S.C. § 1331. Defendants IndyMac and MERS now move to dismiss Plaintiff's Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief may be granted or, alternatively, for summary judgment pursuant to Federal Rule of Civil Procedure 56. Defendants also move to expunge the Notice of Pendency of Action recorded in connection with the Complaint. For the reasons stated below, Defendants' Motion is GRANTED IN PART and DENIED IN PART.*fn1

I. FACTUAL AND PROCEDURAL BACKGROUND

On June 26, 2007, Plaintiff obtained a loan of $410,000 from IndyMac to purchase property located at 3335 Lerwick Road, Sacramento, California 95821 (the "Property"). Pls' Compl. 3:25-27. The loan was secured by a deed of trust ("Deed of Trust") on the Property. Pls' Compl. 2:23-24, Exh. B. Defendant MERS is the beneficiary under the Deed of Trust. Pls' Compl. 2:24-28, Exh. B.

On September 11, 2008, Plaintiff allegedly mailed a Qualified Written Request ("QWR") to Defendants pursuant to the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. §§ 2601-2617, demanding production of the original loan note ("Original Note"). Pls' Compl. 3:27-4:2, Exh. D. Plaintiff alleges that the QWR "was ignored." Pls' Compl. 4:2-4.

On December 8, 2008, MTC Financial, acting as agent for IndyMac, recorded a Notice of Default and Election to Sell. Defs' Mot. 3:14-17. Plaintiff filed the Complaint on March 27, 2009, alleging fraud and negligence, as well as violations of Cal. Civ. Code §§ 2924 and 2923.5, Cal. Fin. Code § 4973, the Home Ownership and Equity Protection Act ("HOEPA," 15 U.S.C. § 1635), RESPA, and the Truth in Lending Act ("TILA," 15 U.S.C. § 1601). See Pls' Compl. The state court issued a temporary restraining order enjoining a sale of the property on March 30, 2009. Defs' Notice of Removal, Exh. 3, Order on Ex Parte Application.

Defendants filed this Motion to Dismiss on April 28, 2009 ("Motion"). The Motion is unopposed. However, pursuant to the local practice of the Eastern District of California, the Court must still consider the Motion to Dismiss on its merits.

II. OPINION

A party may move to dismiss an action for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). In considering a motion to dismiss, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1975), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). Assertions that are mere "legal conclusions," however, are not entitled to the assumption of truth. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009), citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To survive a motion to dismiss, a plaintiff needs to plead "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. Dismissal is appropriate where the plaintiff fails to state a claim supportable by a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

In general, the court may not consider materials other than the facts alleged in the complaint when ruling on a motion to dismiss. Anderson v. Angelone, 86 F.3d 932, 934 (9th Cir. 1996). The court may, however, consider additional materials if the plaintiff has alleged their existence in the complaint and if their authenticity is not disputed. See Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002).

Here, Plaintiff has attached to his Complaint the Notice of Trustee's Sale, Pls' Compl. Exh. A, the Deed of Trust, Id. Exh. B, the Uniform Residential Loan Application, Id. Exh. C, Plaintiff's QWR, Id. Exh. D, and the Truth in Lending Disclosure Statement, Id. Exh. E. Defendants have not questioned the validity of any of these documents and in fact recognize the Notice of Trustee's Sale, the Deed of Trust, the Uniform Residential Loan Application, and the Truth in Lending Disclosure Statement in their Motion. Defs' Motion 4:20-28. Accordingly, the court will consider these documents in deciding Defendants' Motion.*fn2

Upon granting a motion to dismiss for failure to state a claim, the court has discretion to allow leave to amend the complaint pursuant to Federal Rule of Civil Procedure 15(a). "Absent prejudice, or a strong showing of any [other relevant] factor[], there exists a presumption under Rule 15(a) in favor of granting leave to amend." Eminence Capital, L.L.C. v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). "Dismissal with prejudice and without leave to amend is not appropriate unless it is clear . . . that the complaint could not be saved by amendment." Id. Accordingly, a court should grant leave to amend the Complaint unless the futility of amendment warrants dismissing a claim with prejudice.

A. Fraud

Plaintiff alleges that IndyMac fraudulently "switched the bargain" in finalizing the loan transaction, increasing the interest rate on the loan and obligating a pre-payment penalty where no such penalty previously existed.

"In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge and other condition of mind of a person may be averred generally." Fed. R. Civ. Proc. 9(b). A claim of fraud must have the following elements: "(a) a misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage." In re Estate of ...


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