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Castaneda v. Saxon Mortgage Services

December 2, 2009



Plaintiffs Cesar and Suzzanne Castaneda filed this action against defendants Saxon Mortgage Services, Inc. ("Saxon"), Novastar Mortgage, Inc. ("Novastar"), Quality Loan Service Corp. ("Quality Loan"), Mortgage Electronic Registration Systems, Inc. ("MERS"), Synergy Financial Managment, d/b/a Direct ("Synergy"), Louis Leon Pacific, Michael Timoshuck, and Ivette Campos, alleging various state and federal claims relating to a loan they obtained to refinance their home in Sacramento, California. Saxon and MERS move to dismiss plaintiffs' First Amended Complaint ("FAC") pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Novastar subsequently joined Saxon and MERS's motion.*fn1

I. Factual and Procedural Background On May 17, 2005, plaintiffs obtained a loan from Novastar to refinance their home, located at 2600 Andrade Way, Sacramento, California.*fn2 (FAC ¶ 7; Pls.' Am. Request for Judicial Notice ("RJN") Ex. A.) This loan was secured by a Deed of Trust on the property. (FAC ¶ 34.) Plaintiffs claim that they were channeled into this allegedly unaffordable loan through the conduct of mortgage brokers Campos and Timoshuck, who allegedly exaggerated plaintiffs' earnings and failed to provide loan documents to plaintiffs in Spanish despite their limited understanding of English. (Id. ¶¶ 27-31.) Chicago Title Company was listed as trustee and Novastar was listed as lender on the loan documents. (Id.) The Deed of Trust identified MERS as the nominee for the lender and lender's successors and assigns, and as the beneficiary. (Id. ¶ 35.)

MERS facilitates the transfer of mortgage interests by providing an electronic tracking system for the mortgage interests registered in its system.*fn3 (See Id. ¶¶ 10, 35.) To do this, MERS is the beneficiary of record in a "nominee" capacity for the mortgage lender on all security instruments in its system. (Id. ¶ 9.) When the lender assigns its beneficial interest to another entity within MERS's electronic system, MERS remains the beneficiary of record for that instrument by serving as nominee for the new beneficial interest holder. MERS remains the beneficiary of record on the Deed of Trust or mortgage even as the beneficial interest is assigned repeatedly within MERS's electronic system.

MERS allegedly assigned the Deed of Trust for plaintiff's loan to the Bank of New York Mellon on November 19, 2008, and the assignment was recorded on January 21, 2009. (Pls.' Am. RJN Ex. B.) Plaintiffs eventually defaulted on their loan, and a Notice of Default and Election to Sell Under Deed of Trust was filed in Sacramento County by Quality Loan on December 16, 2008. (FAC ¶ 46.) Plaintiffs allegedly were sent notice of a trustee sale by Quality Loan on March 18, 2009. (Id. ¶ 47.) On March 31, 2009, plaintiffs allegedly sent a Qualified Written Request ("QWR") under the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. §§ 2601-2617, to Saxon that included a demand to rescind their loan under the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601-1667f. (Id. ¶ 36.)

In their FAC, plaintiffs assert eleven causes of action against eight defendants. MERS and Saxon's motion to dismiss, which Novastar joins, challenges only the causes of action that apply to MERS and Saxon. The FAC alleges causes of action against Novastar for violations of TILA, the Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), Cal. Civ. Code §§ 1788.1-1788.33, RESPA, California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200-17210, and California Civil Code section 1632, as well as common law claims for negligence, breach of fiduciary duty, fraud, breach of contract, and breach of the covenant of good faith and fair dealing. MERS and Saxon only move to dismiss plaintiffs' RFDCPA, negligence, RESPA, fraud, UCL, section 1632, and wrongful foreclosure claims. Accordingly, the court will consider Novastar's joinder as a motion to dismiss only those claims challenged by MERS and Saxon.

II. Discussion

On 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 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). To survive a motion to dismiss, a plaintiff needs to plead "only 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). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," and where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)(quoting Twombly, 550 U.S. at 556-57).

In general a court may not consider items outside the pleadings upon deciding a motion to dismiss, but may consider items of which it can take judicial notice. Barron v. Reich, 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.

Plaintiffs filed an amended RJN in opposition to MERS and Saxon's motion to dismiss. (Docket No. 38.) Plaintiffs' amended RJN consists of three exhibits: (1) a copy of the Deed of Trust, recorded in Sacramento County on May 20, 2005; (2) a copy of an Assignment of Deed of Trust from MERS to the Bank of New York Mellon, recorded in Sacramento County on January 21, 2009; and (3) an unpublished article entitled "Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System."*fn4 (Pls.' Am. RJN.) MERS and Saxon also submitted a RJN in support of their motion to dismiss which contains two exhibits: (1) a copy of the Deed of Trust and accompanying riders executed by plaintiffs, recorded in Sacramento County on May 20, 2005; and (2) a copy of the Notice of Default and Election to Sell Under Deed of Trust, recorded in Sacramento County on December 16, 2008.

The court will take judicial notice of the first and second exhibits of plaintiff's amended RJN and all exhibits in MERS and Saxon's RJN, as they are matters of public record whose accuracy cannot be questioned. See Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). However, the court denies plaintiff's RJN of the article entitled "Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System," because it asks for notice of an unpublished article which expresses opinions of the author that may reasonably be questioned.

A. California Rosenthal Fair Debt Collection Practices Act

Plaintiffs' second cause of action alleges that Saxon, MERS, and Novastar violated the RFDCPA. The RFDCPA prohibits a host of unfair and oppressive methods of collecting debt, but to be liable under the RFDCPA a defendant must fall under its definition of "debt collector." Izenberg v. ETS Svcs., LLC, 589 F. Supp. 2d 1193, 1199 (C.D. Cal. 2008). A "debt collector" under the RFDCPA is "any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection." Cal. Civ. Code § 1788.2(c) (2008).

Plaintiffs do not identify in their FAC the sections of the RFDCPA that Saxon, MERS and Novastar allegedly violated, and fail to allege facts that would support the inference that Saxon or MERS is a "debt collector" under the RFDCPA. Instead, the FAC contains only a conclusory restatement of the definition of "debt collector" under the RFDCPA, (FAC ¶ 72.), and fails to allege other essential elements of the statute necessary to establish liability as a "debt collector," namely that the deed of trust memorializes a "consumer credit transaction" and that the amount owed under the deed of trust is a "consumer debt" according to the RFDCPA. See Cal. Civ. Code § 1788.2(b)-(f). Such broad allegations, without even identifying what part of the RFDCPA MERS, Saxon, or Novastar violated, are insufficient to survive a motion to dismiss. See Rosal v. First Fed. Bank of Cal., No. 09-1276, 2009 WL 2136777, at * 18 (N.D. Cal. July 15, 2009).

Additionally, foreclosure pursuant to a deed of trust does not constitute debt collection under the RFDCPA. See Izenberg, 589 F. Supp. 2d at 1199; see also Rosal, 2009 WL 2136777, at *18 (dismissing RFDCPA claim as to all defendants in foreclosure case); Ricon v. Recontrust Co., No. 09-937, 2009 WL 2407396, at *4 (S.D. Cal. Aug. 4, 2009) (dismissing with prejudice plaintiff's unfair debt collection claims in foreclosure case); Pittman v. Barclays Capital Real Estate, Inc., No. 09-0241, 2009 WL 1108889, at *3 (S.D. Cal. Apr. 24, 2009) (dismissing with prejudice plaintiff's Rosenthal Act claim in foreclosure case because a "residential mortgage loan does not qualify as a 'debt' under the statute"); Gallegos v. Recontrust Co., No. 08-2245, 2009 WL 215406, at *3 (S.D. Cal. Jan. 28, 2009) (dismissing RFDCPA claim in ...

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