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Phillips v. "MERS" Mortgage Electronic Registration Systems

October 2, 2009


The opinion of the court was delivered by: Oliver W. Wanger United States District Judge



Defendant lender DHI Mortgage Company, Ltd. ("DHI Mortgage") moves to dismiss as meritless pro se Plaintiffs Cory Phillips and Jilissa Spencer's ("Plaintiffs") thirteen claims arising from default and foreclosure on their first and second mortgages which were secured by deeds of trust on real property located at 722 Orestimba Peak Drive, Newman, California 95360; APN: 026-061-014. Defendant DHI Mortgage served the motion on pro se Plaintiffs at their Orestimba Peak Drive address on June 23, 2009. (Doc. 8.) To date, Plaintiffs have not filed an opposition to DHI's motion. Nor have Plaintiffs file a statement of non-opposition pursuant to Local Rule 78-230(c).*fn1


This case arises out of the purchase of a single family home in California in April 2006 by Plaintiffs, Cory Phillips and Jilissa Spencer.*fn2 On April 20, 2006, Plaintiffs purchased the property with funds obtained from DHI Mortgage's first and second mortgage, and secured by deeds of trust and corresponding promissory notes. A December 8, 2008 notice of default and intention to sell was recorded for the property with the Stanislaus County Recorder.

The Complaint, which is devoid of any specific facts as to Plaintiff's loan, contains general allegations that have been serially asserted against Defendant DHI Mortgage in numerous other lawsuits.*fn3 Plaintiffs allege that defendants participated in "unethical business practices" and "violated both State and Federal Law" by selling and distributing loans "that would ultimately be sold to unqualified applicants." (Compl. ¶ 12.) Plaintiffs contend that defendants had information that "reflected their inability to pay for the risky loan," and that "defendants knew or should have known [the sale of such loans] may result in foreclosure, absent serial refinancing into even higher cost loans." (Compl. ¶ 19.) The complaint further alleges:

These loans were neither proper nor suitable for loans [plaintiffs'] condition and station in life. These property at that time and exceeded the reasonable in the foreseeable future, expected value of the based upon expected market changes. Those loans were an attempt to acquire mortgage broker premiums, disadvantage of the plaintiff. This was done as a loans, all to appraiser fees, lender service fees and sub-prime the advantage of the defendants and group of individuals in this industry through the disadvantage of the Plaintiff. concerted action or through civil conspiracy, all to (Compl. ¶ 30.)

On April 13, 2009, Plaintiffs filed the instant action in Stanislaus County Superior Court, alleging thirteen causes of action: (1) Suitability; (2) Negligence; (3) Negligence Per se; (4) Breach of Fiduciary Duty; (5) Negligent Misrepresentation; (6) Intentional Misrepresentation; (7) Breach of the Covenant of Good Faith and Fair Dealing; (8) Failure to Produce the Notes; (9) Unfair Lending Practices; (10) Restoral of Good Credit History; (11) Violation of Cal. Civ.Code 2923.5; (12) Unfair Lending Practices; and (13) "To Restrain a Wrongful Foreclosure Agent."

Plaintiffs seek to recover compensatory, statutory, and punitive damages. (Compl. ¶ 94-96.) Plaintiffs also request "[i]njunctive relief including the issuance of a restraining order and thereafter a preliminary injunction to maintain the status quo pending final adjudication." (Compl. ¶ 97.)

On June 11, 2009, this case was removed on the basis of federal question jurisdiction. The notice of removal asserts that Plaintiffs' action is founded on claims arising under federal laws, including the federal Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § § 2601-2617, and Regulation Z, 12 C.F.R. § 226 et seq. (Doc. 1, ¶ 2.)

On June 23, 2009, DHI filed a motion to dismiss. Plaintiff did not oppose the motion.


DHI Mortgage attacks Plaintiffs' claims as incognizable and lacking necessary elements and factual allegations. Under Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss can be made and granted when the complaint fails "to state a claim upon which relief can be granted." Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

To sufficiently state a claim for relief and survive a 12(b)(6) motion, a complaint "does not need detailed factual allegations" but the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Mere "labels and conclusions" or a "formulaic recitation of the elements of a cause of action will not do." Id. Rather, there must be "enough facts to state a claim to relief that is plausible on its face." Id. at 570. In other words, "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, --- U.S. ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). "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. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." Id. (internal citation and quotation marks omitted).

In deciding whether to grant a motion to dismiss, the court must accept as true all "well-pleaded factual allegations." Iqbal, 129 S.Ct. at 1950. A court is not, however, "required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); see, e.g., Doe I v. Wal-Mart Stores, Inc., --- F.3d ----, 2009 WL 1978730, at *3 (9th Cir. July 10, 2009) ("Plaintiffs' general statement that Wal-Mart exercised control over their day-to-day employment is a conclusion, not a factual allegation stated with any specificity. We need not accept Plaintiffs' unwarranted conclusion in reviewing a motion to dismiss.").

The Ninth Circuit has summarized the governing standard, in light of Twombly and Iqbal, as follows: "In sum, for a complaint to survive a motion to dismiss, the non-conclusory factual content, and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Service, 572 F.3d 962, 2009 WL 2052985, at *6 (9th Cir. July 16, 2009) (internal quotation marks omitted).


A. Suitability (Count I)

The complaint's suitability claim alleges that "defendants breached their professional duties and obligations by providing a sub-prime loan that was neither suitable nor appropriate for the plaintiffs' personal financial condition and well-being." (Compl. ¶ 33.)

DHI Mortgage notes that suitability is an incognizable claim by a borrower against a lender. "The unsuitability doctrine is premised on New York Stock Exchange Rule 405-Know Your Customer Rule and the National Association of Securities Dealers Rules of Fair Practice." O'Connor v. R.F. Lafferty & Co., Inc., 965 F.2d 893, 897 (10th Cir. 1992). DHI Mortgage correctly observes that California law does not extend the suitability doctrine to the mortgage lender-borrower relationship. "Public policy does not impose upon the Bank absolute liability for the hardships which may befall the [borrower] it finances." Wagner v. Benson, 101 Cal. App. 3d 27, 34 (1980). The success of a borrower's investment "is not a benefit of the loan agreement which the Bank is under a duty to protect." Wagner, 101 Cal. App. 3d at 34 (lender lacked duty to disclose "any information it may have had"). Plaintiffs' suitability claim fails as incognizable against DHI Mortgage.

Plaintiffs' conclusory assertions that DHI breached its professional obligations, which were not developed pursuant to a timely filed opposition, lack evidentiary and legal support. Plaintiffs' "suitability" cause of action is not cognizable legal theory against DHI Mortgage. The motion to dismiss this claim is GRANTED.

B. Negligence (Count II)

The complaint's negligence claim alleges that defendants breached their "professional services" duty in that "plaintiffs were placed into loans that were inappropriate for their personal financial circumstances." (Compl. ¶ 34.) DHI Mortgage contends that the negligence claim fails in absence of "a legally recognized duty that a lender has to a borrower." (Doc. 4, 4:23-4:25.)

"The elements of a cause of action for negligence are (1) a legal duty to use reasonable care, (2) breach of that duty, and (3) proximate [or legal] cause between the breach and (4) the plaintiff's injury." Mendoza v. City of Los Angeles, 66 Cal.App.4th 1333, 1339 (1998) (citation omitted). "The existence of a legal duty to use reasonable care in a particular factual situation is a question of law for the court to decide." Vasquez v. Residential Investments, Inc., 118 Cal. App. 4th 269, 278 (2004) (citation omitted).

DHI Mortgage correctly notes the absence of an actionable duty between a lender and borrower in that loan transactions are arms-length and do not invoke fiduciary duties. Absent "special circumstances" a loan transaction "is at arms-length and there is no fiduciary relationship between the borrower and lender." Oaks Management Corp. v. Superior Court, 145 Cal.App.4th 453, 466 (2006). A lender "owes no duty of care to the [borrowers] in approving their loan. 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.'" Wagner, 101 Cal.App.3d at 35 (citations omitted). "[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. Savings & Loan Assn., 231 Cal. App. 3d 1089, 1096 (1991).

DHI Mortgage recognizes the absence of a lender's duty to ensure a loan is suitable for a borrower. "No such duty exists" for a lender "to determine the borrower's ability to repay the loan .... The lender's efforts to determine the creditworthiness and ability to repay by a borrower are for the lender's protection, not the borrower's." Renteria v. United States, 452 F.Supp.2d 910, 922-923 (D.Ariz. 2006) (borrowers "had to rely on their own judgment and risk assessment to determine whether or not to accept the loan").

Plaintiffs' negligence claim lacks a recognized legal duty owed by DHI Mortgage to them. The complaint lacks allegations that Plaintiffs relied on DHI Mortgage's loan processing to ensure their ability to repay the loan. The complaint further lacks facts of special circumstances to impose duties on DHI Mortgage in that the complaint depicts an arms-length home loan transaction, nothing more. A complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Iqbal, 129 S.Ct. 1937, 1949 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570.). A claim is plausible "when the plaintiff pleads factual content that allows the court ...

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