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Love v. First Mortgage Corp.

December 14, 2009

BRYAN M. LOVE, ET AL., PLAINTIFFS,
v.
FIRST MORTGAGE CORPORATION, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Andrew J. Guilford United States District Judge

ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS

Plaintiffs Bryan M. Love and Catarina H. Love ("Plaintiffs") are among many plaintiffs currently before this Court who make claims arising from their purchase of an Option Adjustable Rate Mortgage ("ARM") loan. Plaintiffs filed a Third Amended Complaint ("TAC"). Defendants First Mortgage Corporation ("First Mortgage") and Countrywide Home Loans, Inc. ("Countrywide") (collectively "Defendants") each filed a Motion to Dismiss the TAC ("Motions"). After considering all arguments submitted, the Court GRANTS Defendants' Motions to Dismiss as to Plaintiffs' federal claims.

BACKGROUND

The following facts are taken from the TAC, and for the purpose of this Motion the Court assumes them to be true. Plaintiffs were consumers who refinanced their existing home loan and entered into an Option ARM loan with First Mortgage on May 11, 2006. (TAC ¶ 2.) First Mortgage sold Option ARM home loans to Plaintiffs and other similarly situated consumers. (TAC ¶ 4.) In selling these home loans, First Mortgage offered a low initial teaser rate but did not disclose that "this rate would sharply increase after only one month" or that negative amortization "was certain to occur because of the large spread between the teaser rate and the combined index and margin." (TAC ¶¶ 17, 18.) Harsh exit penalties prevented Plaintiffs from escaping the loans. (TAC ¶ 26.) Countrywide either purchased or was assigned Plaintiffs' Option Arm loan. (TAC ¶ 13.)

Plaintiffs filed their original Complaint in this Court based on federal question jurisdiction, under 28 U.S.C. § 1331. (Complaint ¶ 13.) First Mortgage filed a Motion to dismiss Plaintiffs' Complaint. In Plaintiff's opposition to that motion, Plaintiffs applied for leave to amend their Complaint to add a new potential class representative. The Court granted Plaintiffs' application and, therefore, vacated First Mortgage's Motion to Dismiss Plaintiffs' Complaint.

Plaintiffs filed an amended complaint that they mistakenly labeled the "Second Amended Complaint" ("SAC"), but Plaintiffs did not add a new class representative. In the SAC, Plaintiffs alleged five claims: (1) violations of the Truth in Lending Act, 15 U.S.C. § 1601, et seq. ("TILA"); (2) fraudulent omissions; (3) violations of California Business & Professions Code Section 17200, et seq. (the "UCL"), for unlawful, unfair, and fraudulent business practices; (4) breach of contract; and (5) tortious breach of the covenant of good faith and fair dealing. Of those, Plaintiffs' only claims based on federal questions were: (1) Plaintiffs' first claim, for TILA violations; and (2) Plaintiffs third claim, for violations of the UCL, to the extent that claim was based on TILA violations and violation of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 41-58. First Mortgage filed a Motion to Dismiss Plaintiffs' SAC, and the Court granted that motion because Plaintiffs failed to adequately allege a federal claim. (July 30, 2009 Order Granting Defendant's Motion to Dismiss Plaintiffs' SAC ("July 30, 2009 Order"), Docket Entry 61.) In granting First Mortgage's Motion to Dismiss Plaintiffs' SAC, the Court stated that "[i]f Plaintiffs' federal claims are not viable, then Plaintiffs' remaining claims are not appropriately before this Court." (July 30, 2009 Order 2:8-9.) And the Court specifically instructed that "Plaintiffs should only amend their federal claims. If Plaintiffs amend these claims successfully, then the Court will address Plaintiffs' other claims." (July 30, 2009 Order 2:12-13.)

Plaintiffs allege the same five claims in their TAC. But Plaintiffs still fail to adequately state a federal claim. Plaintiffs' other claims are in this Court based on this Court's supplemental jurisdiction, under 28 U.S.C. § 1367. (TAC ¶ 14.) Because Plaintiffs did not successfully amend their federal claims, Plaintiffs' remaining claims are not appropriately before this Court.

Plaintiffs have had three opportunities to draft a proper complaint. Plaintiffs' failure to adequately allege a federal claim in their TAC is particularly significant due to the Court's specific instructions that "Plaintiffs should only amend their federal claims." (July 30, 2009 Order 2:12-13.)

The Court GRANTS the Motions without leave to amend as to Plaintiffs' federal claims, but without prejudice as to Plaintiffs filing their state law claims in state court.

LEGAL STANDARD

Acourt should dismiss a complaint when its allegations fail to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). A complaint need only include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). "'[D]etailed factual allegations' are not required." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (May 18, 2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 554, 555 (2007)). 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 plaintiff. Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir. 1993).

But the complaint must allege "sufficient factual matter, accepted as true, to 'state a claim that is plausible on its face.'" Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 557). "A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1940 (citing Twombly, 550 U.S. at 556). A court should not accept "threadbare recitals of a cause of action's elements, supported by mere conclusory statements," Iqbal, 129 S.Ct. at 1940, or "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). Dismissal without leave to amend is appropriate only when the Court is satisfied that the deficiencies of the complaint could not possibly be cured by amendment. Jackson v. Carey, 353 F.3d 750, 758 (9th Cir. 2003).

ANALYSIS

The Court considers Plaintiffs' federal claims: (1) Plaintiff's first claim, for TILA violations; and (2) Plaintiffs' third claim, for violation of the UCL, to the extent this claim is based on TILA violations and violation of the FTC Act. Plaintiffs claim for TILA violations fails to state a claim. And Plaintiffs claim for violation of the UCL fails to state a claim based on TILA or FTC Act violations. Because ...


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