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Mertan v. American Home Mortgage Servicing

October 13, 2009


The opinion of the court was delivered by: The Honorable David O. Carter, Judge



[I hereby certify that this document was served by first class mail or Government messenger service, postage prepaid, to all counsel (or parties) at their respective most recent address of record in this action on this date.]


Before the Court is Defendants American Home Mortgage Servicing, Inc. ("AHMSI") and Mortgage Electronic Registration Systems, Inc.'s ("MERS") (collectively "Defendants") Motion to Dismiss the First Amended Complaint ("FAC") for Failure to State a Claim Pursuant to Fed. R. Civ. P. 12(b)(6) (the "Dismissal Motion"). Also before the Court is Defendants' Motion to Expunge Lis Pendens and Request for Attorney's Fees and Costs (the "Expungement Motion"). The Court finds the matters appropriate for decision without oral argument. FED. R. CIV. P. 78; LOCAL R. 7-15. After considering the moving, opposing, and replying papers, the Court hereby rules as follows:


This matter involves a loan taken out by Plaintiffs Gary E. Mertan and Jill E. Mertan ("Plaintiffs" or the "Mertans") on May 31, 2006, with Defendant AHMSI. The loan was secured against the Plaintiffs' personal residence. Plaintiffs bring the instant suit primarily contending that Defendants AHMSI and MERS failed to provide accurate material disclosures with respect to the loan and have also failed to provide, or even negotiate, an appropriate loan modification in order to prevent Plaintiffs' home from being foreclosed upon. FAC, ¶ 1. Specifically, Plaintiffs contend that they were never provided statutorily required notices of their right to cancel the loan. Id. at ¶¶ 16,17. In addition, they claim that required material disclosure were not made with respect to the loan's terms, such as the actual interest rate on the loan or that making payments according to the loans terms would result in negative amortization. Id. at ¶¶ 17, 30. Plaintiffs further contend that they have timely tendered their monthly payments to Defendant AHMSI but AHMSI began rejecting those payment in June 2009, and that the alleged amount due on their account ($3,645.56) must be the result of improper conduct by

Id. at ¶¶ 63-65. Furthermore, Plaintiffs contend that on May 16, 2009, they sent a letter to AHMSI indicating their intent to rescind the loan, but AHMSI allegedly failed to respond to the rescission notice or take any other steps to effectuate rescission. Id. at ¶¶ 22-23. While the FAC makes it unclear if foreclosure proceedings have even been initiated, Plaintiffs also ask this Court to postpone any foreclosure proceedings until Defendants engage in loan modification negotiations with Plaintiffs and offer Plaintiffs a proper modification. Id. at ¶ 43.

Thus, by their FAC, Plaintiffs raise the following twenty causes of action: (1) Truth in Lending Act ("TILA") Violations - Notice of Right to Cancel; (2) TILA Violations - Material Disclosures; (3) Real Estate Settlement Procedures Act ("RESPA") Violations (12 U.S.C. § 2605(e)(1)); (4) RESPA Violations (12 U.S.C. § 2605(e)(2)); (5) National Housing Act ("NHA") Violations (12 U.S.C. § 1701x(c)(5)); (6) California Civil Code § 2923.53 Violations; (7) California Civil Code § 2923.6 Violations; (8) Breach of Contract - Mortgage Covenants; (9) Civil Conspiracy; (10) Negligent Servicing; (11) Breach of Contract - Third Party Beneficiary; (12) Unfair Debt Collection Practices; (13) California Business & Professions Code § 17200; (14) Breach of Implied Covenant of Good Faith and Fair Dealing; (15) Cancellation of Instrument; (16) Quiet Title; (17) Accounting; (18) Unconscionability; (19) Rescission in Equity; and (20) Unjust Enrichment/Double Dipping. Defendants brought the instant Dismissal Motion on August 21, 2009, and the Expungement Motion on August 28, 2009.

Legal Standard

a. Motion to Dismiss for Failure to State a Claim

Under Federal Rule of Civil Procedure 12(b)(6), a complaint must be dismissed when a plaintiff's allegations fail to state a claim upon which relief can be granted. Once it has adequately stated a claim, a plaintiff may support the allegations in its complaint with any set of facts consistent with those allegations. Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1969 (2007); see Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990) (stating that a complaint should be dismissed only when it lacks a "cognizable legal theory" or sufficient facts to support a cognizable legal theory).

Dismissal for failure to state a claim does not require the appearance, beyond a doubt, that the plaintiff can prove "no set of facts" in support of its claim that would entitle it to relief. Twombly, 127 S.Ct. at 1968 (abrogating Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99 (1957)).

The Court must accept as true all factual allegations in the complaint and must draw all reasonable inferences from those allegations, construing the complaint in the light most favorable to the Guerrero v. Gates, 442 F.3d 697, 703 (9th Cir. 2006); Balistreri, 901 F.2d at 699. Dismissal without leave to amend is appropriate only when the Court is satisfied that the deficiencies in the complaint could not possibly be cured by amendment. Jackson v. Carey, 353 F.3d 750, 758 (9th Cir. Chang v. Chen, 80 F.3d 1293, 1296 (9th Cir. 1996)); Lopez v. Smith, 203 F.3d 1122, 1127

Additionally, in cases where fraud is alleged, Federal Rule of Civil Procedure 9(b) requires that allegations be stated with particularity. Allegations of fraud must "state the time, place and specific content of the false representations as well as the parties to the misrepresentations." Alan Neuman Prod., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393 (9th Cir. 1986).

In general, a court cannot consider materials outside the pleadings on a motion to dismiss for failure to state a claim. See Fed. R. Civ. P. 12(b). A court may, however, consider items of which it can take judicial notice without converting the motion to dismiss to one for summary judgment. Barron , 13 F.3d 1370, 1377 (9th Cir. 1994). A court may take judicial notice of facts "not subject to reasonable dispute" because they are either "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201. Additionally, a court may take judicial notice of "'matters of public record' without converting a motion to dismiss into a motion for summary

Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001) (quoting MGIC Indem. Corp. , 803 F.2d 500, 504 (9th Cir. 1986)). Under the incorporation by reference doctrine, courts may also consider documents "whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the [plaintiff's] pleading." In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986 (9th Cir. 1999) (quoting Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994)) (alteration in original). In other words, the court may consider documents "on which the complaint 'necessarily relies' if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) and no party questions the authenticity of the copy attached to the 12(b)(6) motion." Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (citations omitted). "The court may treat such a document as 'part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under 12(b)(6). Id.

b. Motion to Expunge Lis Pendens

"A lis pendens is recorded by someone asserting a real property claim, to give notice that a lawsuit has been filed which may, if that person prevails, affect title to or possession of the real property described in the notice." Federal Deposit Ins. Corp. v. Charlton, 17 Cal. App. 4th 1066, 1069 citing Cal. Code Civ. Pro. §§ 405.2, 405.4, 405.20). "Its effect is that anyone acquiring an interest in the property after the action was filed will be bound by the judgment. . . Once a lis pendens is filed, it clouds the title and effectively prevents the property's transfer until the litigation is resolved or the lis pendens is expunged." BGJ Associates, LLC v. Superior Court of Los Angeles, 75 Cal. App. 4th 952, 966-67 (1999). Yet a lis pendens is relatively easy to be recorded. Accordingly, case law and legislative intent reflects a historical reluctancy to apply a lis pendens to guard against the serious consequences flowing from it. See id. ("lis pendens is a provisional remedy which should be applied

The legislature revised the California lis pendens statute in 1992. The revisions reflect this caution toward lis pendens, rendering it easier to expunge. A motion for expungement may be brought at any time after notice of pendency has been recorded. Cal. Code Civ. Pro. § 405.30. The claimant, that is, the person who recorded the notice of lis pendens, shall have the burden of proof. Id.

Under the 1992 revisions, a court shall order the notice expunged if it finds either that the pleading on which the notice is based does not contain a real property claim (§ 405.31, the "real property claim" prong), or that the claimant failed to establish by a preponderance of the evidence the probable validity of the real property claim (§ 405.32, the "probable validity" prong). Hunting World, Inc. v. Superior Court of San Francisco, 22 Cal. App. 4th 67, 70-71 (1994). A "real property claim" is defined as a cause of ...

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