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Fimbres v. Chapel Mortgage Corp.

November 20, 2009


The opinion of the court was delivered by: Irma E. Gonzalez, Chief JudgeUnited States District Court


Presently before the Court is Defendants Saxon Mortgage Services, Inc. and Deutsche Bank National Trust Company's ("Defendants") motion to dismiss Plaintiffs Francisco J. Fimbres and Loren Mendez's ("Plaintiffs") first amended complaint. Defendants also request judicial notice of several documents in support of the motion to dismiss.

To date, Plaintiffs have filed no opposition.*fn1 When an opposing party does not file papers in the manner required by Civil Local Rule 7.1(e)(2), the Court may deem the failure to constitute a consent to the granting of a motion or other request for ruling by the court. Civ. L. R. 7.1(f) (3)(c). Notwithstanding Plaintiffs' failure to respond, the Court reviews the motion on the merits to ensure dismissal is appropriate. The Court finds the motion appropriate for disposition without oral argument pursuant to Civil Local Rule 7.1(d).


The following facts are drawn from Plaintiffs' first amended complaint ( "FAC") unless otherwise noted. On January 5, 2006, Plaintiffs purchased a single-family home located at 2218 Yturralde Drive, Calexico, California 92231 (the "Property"). Plaintiffs financed the Property by obtaining a loan, secured by a deed of trust against the Property, from Defendant Chapel Mortgage Corporation ("Chapel Mortgage"). Defendant Deutsche Bank National Trust Company ("Deutsche") is both the assignee of the deed of trust (Def.'s Request for Judicial Notice [hereinafter "RJN"], Exhibit 8) and the purchaser of the Property at the foreclosure sale. Defendant Saxon Mortgage Services ("Saxon") is the current loan servicer for Deutsche.

Plaintiffs allege that during the initial loan application process, they were required to state their income. Defendants did not request proof of their income and did not show Plaintiffs the exact amount of income eventually stated in the loan application. Plaintiffs contend Defendants intentionally inflated Plaintiffs' incomes in the application without disclosing the changes to them. Plaintiffs allege that based on the inflated income amounts, they were able to obtain a loan, although Defendants knew they could not afford it. As a result, Plaintiffs contend the debt-to-income ratio on the loan ended up being well above the industry recommended 35%. Plaintiffs also allege that at the time of closing, they failed to receive initial and final disclosures, including RESPA, TILA, ECOA, and FCRA disclosures.

Plaintiffs later had difficulty paying their mortgage. During this period, Plaintiffs contend they never received any communication from Defendants regarding the potential for loan modification. On April 29, 2009, the Property was sold at a foreclosure sale, allegedly without proper legal notices. Deutsche purchased the Property. On March 30, 2009, an unlawful detainer action was filed against Plaintiffs in state court.


On April 28, 2009, Plaintiffs filed the original complaint against Defendants. (Doc. No. 1.) On May 6, 2009, before Defendant answered, Plaintiffs filed a first amended complaint, adding Deutsche as a defendant. (Doc. No. 3.) Plaintiffs bring the following 18 causes of action: (1) intentional misrepresentation, (2) breach of fiduciary duty, (3) breach of the covenant of good faith and fair dealing, (4) declaratory relief, (5) quiet title, (6) violation of ECOA, (7) predatory lending, (8) negligence, (9) usury, (10) accounting, (11) violations of TILA and HOEPA, (12) violation of RESPA, (13) violation of FCRA, (14) slander of title, (15) violation of California Civil Code § 1632, (16) violation of California Business & Professions Code § 17200, (17) violation of California Civil Code § 2923.6, and (18) violation of California Civil Code § 2923.5.

On August 24, 2009, Defendants Saxon and Deutsche filed this motion to dismiss all 18 causes of action for failure to state a claim. (Doc. No. 21.)


I. Legal Standard

A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a) (2009). A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). The court must accept all factual allegations pled in the complaint as true, and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996). 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." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). However, "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555 (citation omitted). "Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. (citation omitted). In spite of the deference the court is bound to pay to the plaintiff's allegations, it is not proper for the court to assume that "the [plaintiff] can prove facts that [he or she] has not alleged or that 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). Also, the court need not accept "legal conclusions" as true. Ashcroft v. Iqbal, --- U.S. ---, 129 S.Ct. 1937, 1949 (2009).

However, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. at 1941. A claim has "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 1939 (citing Twombly, 550 U.S. at 556). "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." Id. at 1949 (citing Twombly, 550 U.S. at 556). "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. (citing Twombly, 550 U.S. at 557).

II. Request for Judicial Notice

On June 10, 2009, Defendants filed a request for judicial notice asking the Court to judicially notice the following documents filed in the Imperial County Recorder's Office: (1) Grant Deed, recorded January 12, 2006; (2) Deed of Trust, recorded January 12, 2006 (Doc. No. 2006-001936); (3) Deed of Trust, recorded January 12, 2006 (Doc. No. 2006-001937); (4) Notice of Default, recorded June 20, 2008; (5) Substitution of Trustee, recorded on December 12, 2008; (6) Notice of Trustee's Sale, recorded on December 12, 2008; (7) Assignment of Deed of Trust, recorded on January 22, 2009; (8) Trustee's Deed Upon Sale, recorded January 22, 2009; and (9) Notice of Pendency of Action, recorded April 29, 2009. Defendants also request judicial notice of a First Amended Complaint filed by Plaintiffs' counsel on May 6, 2009 in a different case, Lopez v. New Century Mortgage Corp., et al., Case No. 09-cv-0885, filed in the United States District Court, Southern District of California.

In ruling on a motion to dismiss for failure to state a claim, "a court may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice." Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). Accordingly, a court may consider matters of public record on a motion to dismiss, and in doing so "does not convert a Rule 12(b)(6) motion to one for summary judgment." Mack v. South Bay Beer Distributors, 798 F.2d 1279, 1282 (9th Cir. 1986), abrogated on other grounds by Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 111 (1991).

Here, the documents Defendants have submitted are public records subject to judicial notice under Federal Rule of Evidence 201. The Court therefore GRANTS Defendants' request for judicial notice.

III. Analysis

A. First Cause of Action: Intentional Misrepresentation

In their first cause of action Plaintiffs allege intentional misrepresentation, or fraud. Under California law, there are five elements of common law fraud: (1) misrepresentation, (2) knowledge of its falsity, (3) intent to defraud, (4) justifiable reliance, and (5) resulting damage. Gil v. Bank of Am., N.A., 42 Cal. Rptr. 3d 310, 317 (Ct. App. 2006). Federal Rule of Civil Procedure 9(b) requires: "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." In the Ninth Circuit, this rule "has been interpreted to mean the pleader must state the time, place and specific content of the false representations as well as the identities of the parties to the misrepresentation." Misc. Serv. Workers, etc. v. Philco-Ford Corp., WDL Div., 661 F.2d 776, 782 (9th Cir. 1981). "In the context of a fraud suit involving multiple defendants, a plaintiff must, at a minimum, 'identif[y] the role of [each] defendant[ ] in the alleged fraudulent scheme.'" Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir.2007) (quoting Moore v. Kayport Package Express, 885 F.2d 531, 541 (9th Cir.1989)). In construing a claim of fraud, "the policy of liberal construction of the pleadings... will not ordinarily be invoked to sustain a pleading defective in any material respect." Gil, 42 Cal. Rptr. 3d at 317.

Plaintiffs' allegations lack the requisite particularity. It is critical to note that Plaintiffs' allegations generally do not differentiate between the different defendants. The extent of Plaintiffs' fraud allegation is that "Defendants... inserted an inflated income for the Plaintiffs, without disclosing said change to them" (FAC ¶ 22), and that based on the inflated income they "were able to obtain a loan, though Defendants were clearly aware that such loan could not be afforded by Plaintiffs" (FAC ¶ 23.) First, Plaintiffs fail to identify a single representation made by Saxon or Deutsche in connection with the loan origination. Plaintiffs allege that they "utilized the services of Chapel Mortgage Corporation to obtain a loan." (FAC ¶ 20 (emphasis added).) Second, Plaintiffs fail to provide the specific content of the alleged misrepresentations. Plaintiffs do not state what income amounts they claimed on their application and what inflated amounts Defendants later inserted. Plaintiffs contend the debt-to-income ratio on the loan ended up being well above the industry recommended 35%, but do not allege the actual debt-to-income ratio on their loan.

This lack of particularity requires the Court to GRANT Defendants' motion to dismiss Plaintiffs' intentional misrepresentation claim.

B. Second Cause of Action: Breach of Fiduciary Duty

Plaintiffs allege that "Defendants breached their fiduciary duty to Plaintiffs." (FAC ¶ 29.) However, it is well established that 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. Sav. & Loan Assn., 283 Cal. Rptr. 53, 56 (Ct. App. 1991); see also Price v. Wells Fargo Bank, 261 Cal.Rptr. 735, 740 (Ct. App. 1989) (citing Downey v. Humphreys, 227 P.2d 484 (Cal. 1951)) ("'A debt is not a trust and there is not a fiduciary relation between debtor and creditor as such.' The same principle should apply with even greater clarity to the relationship between a bank and its loan customers."). "Without a fiduciary relationship, there can be no breach of fiduciary duty." Tina v. Countrywide, 2008 U.S. Dist. LEXIS, at *11, 2008 WL 4790906, at *4 (S.D. Cal. Oct. 30, 2008).

Here, Plaintiffs do not allege any facts to support a finding that a fiduciary relationship existed. Plaintiffs do not allege that they had anything more than a borrower-lender relationship with Defendants. Accordingly, the Court GRANTS Defendants' motion to dismiss with prejudice Plaintiffs' breach of fiduciary duty claim.

C. Third Cause of Action: Breach of Covenant of Good Faith and Fair Dealing

Plaintiffs allege that Defendants breached an implied covenant of good faith and fair dealing. "California law implies a covenant of good faith and fair dealing in every contract." Mundy v. Household Fin. Corp., 885 F.2d 542, 544 (9th Cir.1989) (citing Seaman's Direct Buying Serv., Inc. v. Standard Oil Co., 686 P.2d 1158, 1166 (Cal. 1984)). "The implied covenant imposes certain obligations on contracting parties as a matter of law - specifically, that they will discharge their contractual obligations fairly and in good faith." Mundy, 885 F.2d at 544 (citing Koehrer v. Superior Court, 226 Cal.Rptr. 820, 828 (1986)). The prerequisite for any action for breach of the covenant of good faith and fair dealing is the existence of a contractual relationship between the parties, because the covenant is an implied term of the contract. Smith v. City & County of San Francisco, 275 Cal. Rptr. 17, 23-24 (Ct. App. 1990).

Plaintiffs allege "the agreements entered into between Plaintiffs and Defendants contained an implicit covenant of good faith and fair dealing" (FAC ¶ 34), and that Defendants breached it by "purposefully overstating Plaintiffs' income and failing to disclose material information in the loan application process" (FAC ¶ 35). First, Plaintiffs' claim against Saxon fails because Plaintiffs do not allege the existence of a contractual relationship with Saxon, the loan servicer. Second, Plaintiffs' claim against Deutsche fails because Plaintiffs do not allege facts to support a finding that Deutsche did not fairly and in good faith discharge its contractual obligations. The alleged wrongful acts involve the loan origination, to which Deutsche was not a party. Finally, to the extent that Plaintiffs' allegations target the loan application process, this claim fails because "the implied covenant [of good faith and fair dealing] is a supplement to an existing contract, and thus it does not require parties to negotiate in good faith prior to any agreement." See McClain v. Octagon Plaza, LLC, 71 Cal. Rptr. 3d 885, 897 (Ct. App. 2008).

Accordingly, the Court GRANTS Defendants' motion to dismiss Plaintiffs' claim for breach of the implied covenant of good faith and fair dealing.

D. Fourth Cause of Action: Declaratory Relief

Plaintiffs request a judicial determination and declaration of the rights of the parties concerning the Property and the loan transaction. (FAC ¶ 40-41.) "Declaratory relief is appropriate when: (1) the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and (2) it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Guerra v. Sutton, 783 F.2d 1371, 1376 (9th Cir. 1986). While "[t]he existence of another adequate remedy does not preclude a declaratory judgment that is otherwise appropriate," Fed. R. Civ. P. 57 (2009), "[t]he availability of other adequate remedies may make declaratory relief 'inappropriate,'" StreamCast Networks, Inc. v. IBIS LLC, 2006 U.S. Dist. LEXIS 97607, at *10, 2006 WL 5720345, at *4 (C.D. Cal. May 2, 2006). Moreover, a federal court may decline to address a claim for declaratory relief "[w]here the substantive suit would resolve the issues raised by the declaratory judgment action,... because the controversy has 'ripened' and the uncertainty and anticipation of litigation are alleviated." Tina v. Countrywide Home Loans, Inc., 2008 U.S. Dist. LEXIS 88302, at *6, 2008 WL 4790906, at *2 (S.D. Cal. Oct. 30, 2008) (quoting Tempco Elec. Heater Corp. v. Omega Eng'g, Inc., 819 F.2d 746, 749 (7th Cir. 1987)).

Here, the FAC does not suggest that a declaratory judgment would entitle Plaintiffs to any relief beyond the relief requested pursuant to the substantive claims or that a declaratory judgment would resolve any uncertainties aside from those already addressed by the substantive claims. As such, the Court GRANTS Defendants' motion to dismiss with prejudice Plaintiffs' claim for declaratory relief.

E. Fifth Cause of Action: Quiet Title

Plaintiffs bring a quiet title claim against Defendants, alleging that "Defendants claim and assert interests in the above-described property which are adverse to Plaintiffs" and that the claims of Defendants are based on the deeds of trust. (FAC ¶ 44.)

The purpose of a quiet title action is to determine "all conflicting claims to the property in controversy and to decree to each such interest or estate therein as he may be entitled to." Newman v. Cornelius, 83 Cal. Rptr. 435, 437 (Ct. App. 1970). California Code of Civil Procedure ยง 761.020 provides that ...

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