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Gonzalez v. First Franklin Loan Services

January 9, 2010


The opinion of the court was delivered by: Anthony W. Ishii Chief United States District Judge


(Docs. Nos. 25 and 26)


Maria Gonzalez's ("Plaintiff") claims arise from the refinance of a loan secured by real property located at 1101 and 1105 Normandy Drive, Bakersfield, California ("Property"). In September 2006, Plaintiff alleges that Defendant Amira Shiffer ("Shiffer") approached Plaintiff and "solicited her to refinance her residence." Defendant Shiffer informed Plaintiff that she was a loan officer for Defendant Integra Funding Group, Inc. ("Integra"). Shiffer advised Plaintiff that she could get her the "best interest rates" available on the market. Plaintiff's FICO score was over 700, which Plaintiff alleges should have qualified her as a "Prime" borrower. Plaintiff alleges that Shiffer classified Plaintiff as a "Sub-Prime" borrower and did not disclose other loan program options. Plaintiff alleges that she told Shiffer that she wanted to refinance her loan to a fixed rate loan for 30 years. Shiffer advised Plaintiff that she could get her an adjustable rate loan at 6.00% interest. Shiffer sold Plaintiff a loan at 10% interest rate with an adjustable rate and a prepayment rider.

Shiffer told Plaintiff that "if the loan ever became unaffordable, [Plaintiff] would simply refinance it into an affordable loan." Plaintiff alleges that she was not given a copy of the loan documents prior to closing and was not given a proper notice of cancellation. At closing, Plaintiff was only given a few minutes to sign the loan documents and the notary did not explain the documents nor was Plaintiff allowed to review them. Plaintiff alleges that she was directed into a loan for which she was not qualified based upon her income as stated in documents provided to Defendants Integra, Thomas Crivello ("Crivello")*fn2, and Shiffer.

On November 29, 2006, Plaintiff completed the loan on the property. The Deed of Trust identified Defendant First Franklin Financial Corp. ("FFF") as the lender and Defendant Mortgage Electronic Registration Systems, Inc. ("MERS") as the beneficiary and nominee for the lender. In February 2009, a Notice of Default was filed in Kern County. In May 2009, Defendant Cal-Western noticed the Trustee Sale of the Property.

On May 28, 2009, Plaintiff filed suit in this court. On August 25, 2009, Plaintiff filed an amended complaint. Plaintiff alleges causes of action for: (1) Violation of Truth-in-Lending Act ("TILA")-Rescission and Statutory Damages against Defendant FFF; (2) Violation of California Rosenthal Act ("RFDCPA") Cal. Civil Code §1788 against Defendants FFF, Home Loan Services, Inc. ("HLS") (erroneously sued as First Franklin Loan Services), and MERS; (3) Negligence against all Defendants; (4) Violation of Real Estate Settlement Procedures Act ("RESPA") against Defendants FFF and HLS; (5) Breach of Fiduciary Duty against Defendants Shiffer, Integra, FFF, and Crivello; (6) Fraud against all Defendants; (7) Violations of California Business & Professions Code § 17200 ("UCL") against all Defendants; (8) Breach of Contract against Defendants Shiffer, Crivello, and FFF; (9) Breach of Implied Covenant of Good Faith and Fair Dealing against Defendants Shiffer, Crivello, and FFF; (10) Wrongful Foreclosure against Defendants FFF, Cal-Western, Bank of America, N.A. ("BOA") (as successor by merger to LaSalle Bank, N.A., as trustee of the trust named as "Franklin Mortgage Loan Trust"), HLS, and MERS; and (11) Violation of California Civil Code §1632 against all Defendants.

Defendants HLS, FFF, BOA, and MERS now move to have the case dismissed for failure to state a claim and move to strike portions of Plaintiff's amended complaint that refer to the recovery of punitive damages.

On October 3, 2009, Plaintiff filed an opposition and a request for judicial notice. On October 15, 2009, the court took the matter under submission without oral argument.


Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Johnson v. Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th Cir. 2008); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In reviewing a complaint under Rule 12(b)(6), all allegations of material fact are taken as true and construed in the light most favorable to the non-moving party. Marceau v. Blackfeet Hous. Auth., 540 F.3d 916, 919 (9th Cir. 2008); Vignolo v. Miller, 120 F.3d 1075, 1077 (9th Cir. 1999). The Court must also assume that general allegations embrace the necessary, specific facts to support the claim. Smith v. Pacific Prop. and Dev. Corp., 358 F.3d 1097, 1106 (9th Cir. 2004); Peloza v. Capistrano Unified Sch. Dist., 37 F.3d 517, 521 (9th Cir. 1994). But, the Court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1056-57 (9th Cir. 2008); Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). Although they may provide the framework of a complaint, legal conclusions are not accepted as true and "[t]hreadbare recitals of elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-50 (2009); see also Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003). Furthermore, Courts will not assume that plaintiffs "can prove facts which [they have] not alleged, or that the defendants have violated... laws in ways that have not been alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983). As the Supreme Court has recently explained:

While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. 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).

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, to "avoid a Rule 12(b)(6) dismissal, "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. at 1949; see Twombly, 550 U.S. at 570; see also Weber v. Department of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir. 2008). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949.

The plausibility standard is not akin to a 'probability requirement,' but it asks 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.'...

Determining whether a complaint states a plausible claim for relief will... be a context specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it has not shown -- that the pleader is entitled to relief.

Iqbal, 129 S.Ct. at 1949-50. "In sum, for a complaint to survive a motion to dismiss, the nonconclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. United States Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009).

In deciding whether to dismiss a claim under Rule 12(b)(6), the Court is generally limited to reviewing only the complaint, but may review materials which are properly submitted as part of the complaint and may take judicial notice of public records outside the pleadings. See Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001); Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir. 1996);MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986). Further, under the "incorporation by reference" doctrine, courts may review 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." Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005); Lapidus v. Hecht, 232 F.3d 679, 682 (9th Cir. 2000). The "incorporation by reference" doctrine also applies "to situations in which the plaintiff's claim depends on the contents of a document, the defendant attaches the document to its motion to dismiss, and the parties do not dispute the authenticity of the document, even though the plaintiff does not explicitly allege the contents of that document in the complaint." Knievel, 393 F.3d at 1076 (citing Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998)).

If a Rule 12(b)(6) motion to dismiss is granted, "[the] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc). In other words, leave to amend need not be granted when amendment would be futile. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).


The basis of Plaintiff's suit is her contention that the Defendants placed her into a toxic loan. Plaintiff also contends that the Defendants do not own the loan and are not "persons entitled to enforce the security interest under the Note and Deed of Trust, as defined under Cal. Code § 3301." See First-Amended Complaint ("FAC") ¶34. Plaintiff contends that no legal transfer of the loan occurred. Plaintiff also alleges that Defendants failed to provide copies of the TILA disclosure statement, Notices of Right to Cancel ("NRC") and various other disclosures. See FAC ¶29. Plaintiff alleges that Defendants Shiffer and Integra induced Plaintiff to enter the subject loan by making misrepresentations. See FAC ¶ ¶25-30. Plaintiff alleges that Shiffer misrepresented what the interest rate would be, Plaintiff's income, and Plaintiff's ability to subsequently refinance. Plaintiff contends that the remaining Defendants are responsible for these alleged misrepresentations based on agency and conspiracy theories.

I. First Claim for Relief under TILA-Rescission and Statutory Damages

Plaintiff's Argument Plaintiff alleges that she is entitled to rescission of her loan because Defendant FFF violated TILA because it: (a) did not provide required disclosures prior to consummation of the transactions; (b) failed to make the disclosures clearly and conspicuously, (c) failed to deliver TILA notices; (d) placed terms prohibited by TILA into the transaction; and (e) failed to disclose all finance charge details and the annual percentage rate. See FAC ¶60. Plaintiff also alleges that FFF extended credit to her without regard to her ability to pay and falsified income and appraisal information to get the loan approved.

Defendant's Argument

FFF contends that Plaintiff's TILA rescission and statutory damage claims are barred by TILA's statute of limitations. FFF also contends that Plaintiff signed the relevant loan documents, including TILA disclosures and Notice of Right to Cancel.


Notwithstanding the fact that Plaintiff appears to have abandoned her TILA claims as she fails to respond to Defendants' arguments in her opposition, the court will address the TILA claims on the merits. TILA "requires creditors to provide borrowers with clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower's rights." Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998). The failure to satisfy TILA's requirements subjects a lender to "statutory and actual damages [that are] traceable to a lender's failure to make the requisite disclosures." Id. (citing 15 U.S.C §1640).

There is a one-year statute of limitations period in which to file an action for such damages. See 15 U.S.C. § 1640(e); Beach, 523 U.S. at 412. The one-year limitations period of "[15 U.S.C. §] 1640(e) runs from the date of consummation of the transaction but... the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the fraud or non-disclosures that form the basis of the TILA action." King v. California, 784 F.2d 910, 915 (9th Cir. 1986).

Additionally, TILA "authorizes a borrower whose loan is secured with his 'principal dwelling,' and who has been denied the requisite disclosures, to rescind the loan transaction...." Beach, 523 U.S. at 412 (citing 15 U.S.C. § 1635(a)). The right of rescission may last up to three years depending on when or if a lender delivers a statement containing the requisite TILA disclosures. Hefferman v. Bitton, 882 F.2d 379, 383 (9th Cir. 1989). However, the right of rescission is completely extinguished after three years from the date of the loan's consummation.

15 U.S.C. § 1635(f); Beach, 523 U.S. at 412, 419; Miguel v. Country Funding Corp., 309 F.3d 1161, 1163-64 (9th Cir. 2002).

For purposes of TILA, "consummation" is defined as "the time that a consumer becomes contractually obligated on a credit transaction." 12 C.F.R. § 226.2(a)(13); Grimes v. New Century Mortg. Corp., 340 F.3d 1007, 1009 (9th Cir. 2003).

With respect to rescission, Plaintiff's claim is not barred by the statute of limitations because she attempted rescission within the three-year limitations period. The loan closed on November 29, 2006, and it appears that Plaintiff attempted to rescind on April 20, 2009. See FAC¶34. This is within the three-year limitations period. See 15 U.S.C. § 1635(f); Beach, 523 U.S. at 412, 419; Miguel, 309 F.3d at 1163-64.

Nevertheless, Plaintiff's recession claim fails because she does not allege that she is financially capable of tendering the loan proceeds. In Yamamoto v. Bank of New York, the Ninth Circuit held that "in applying TILA, 'a trial judge ha[s] the discretion to condition rescission on tender by the borrower of the property he had received from the lender.'" 329 F.3d 1167, 1171 (9th Cir. 2003). As explained in Yamamoto, the rescission provision of TILA, 15 U.S.C. §1635(a), and implementing regulation 12 C.F.R. § 226.23, provides that the borrower is not liable for any finance or other charge, and that any security interest becomes void upon such a rescission. The statute adopts a sequence of rescission and tender that must be followed unless the court orders otherwise: within twenty days of receiving a notice of rescission, the creditor is to return any money or property and reflect termination of the security interest; when the creditor has met these obligations, the borrower is to tender the property.

329 F.3d at 1170. The Ninth Circuit held that the "statute need not be interpreted literally as always requiring the creditor to remove its security interest prior to the borrower's tender of proceeds." Id. at 1171.

Here, Plaintiff concedes that she cannot allege that she has the ability to tender. See Plaintiff's Opp. Brief at page 35. As such, her rescission claim fails. See Farmer v. Countrywide Financial Corp., 2009 WL 1530973, at *5 (C.D. Cal. May 18, 2009) (granting defendant's motion to dismiss because plaintiffs did not allege that they had tendered or were financially capable of tendering the loan's principal balance); Pagtalunan v. Reunion Mortgage Inc., 2009 WL 961995, at *3 (N.D. Cal. Apr. 8, 2009) (same); Garza v. American Home Mortg., 2009 WL 188604, at *5 (E.D. Cal. Jan. 27, 2009) (same).

Accordingly, FFF's motion to dismiss is granted as to Plaintiff's claim for rescission under TILA. Dismissal will be without leave to amend as Plaintiff concedes that she does not have the ability to tender and pay back what she has received.

With respect to statutory damages, Plaintiff filed her TILA claim beyond the one-year limitations period. As described above, the loan closed on November 29, 2006, and Plaintiff filed her TILA claim on May 28, 2009. Dismissal is appropriate. See 15 U.S.C. § 1640(e); Beach, 523 U.S. at 412; King, 784 F.2d at 915. Moreover, as Plaintiff has presented no opposition to Defendants' arguments, the Court will dismiss the claim without leave to amend.

II. Second Claim for Relief-RFDCPA

Plaintiff alleges that Defendants HLS, FFF, and MERS violated the Rosenthal Act by collecting on a debt not owed to the Defendants, making false reports to credit reporting agencies, foreclosing upon a void security interest, foreclosing upon a note that they do not possess, and using unfair and unconscionable means in an attempt to collect a debt. See FAC ¶70.

Defendants argue that the Rosenthal Act claim is alleged generally and without any supporting facts that indicate wrongdoing.


The purpose of the RFDCPA is "to prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts." Cal. Civ. Code § 1788.1(b). Under the RFDCPA, a "debt collector" is defined as "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)). A debt collector violates the act when it engages in harassment, threats, the use of profane language, false simulation of the judicial process, or when it cloaks its true nature of a licensed collection agency in an effort to collect a debt. See Cal. Civ. Code. §§ 1788.10-88.18; see also Hernandez v. Cal. Reconveyance Co., 2009 U.S. Dist. LEXIS 13936, at *13 (E.D. Cal. Feb. 23, 2009) (holding that the complaint lacked allegations of harassment or abuse, false or misleading representations of the debt collector's identity, or unfair practices during the process of collecting debt).

The RFDCPA is not applicable until after a loan is made and does not constitute a lending regulation. See Alkan v. Citimortgage, Inc., 336 F.Supp.2d 1061, 1064 (N.D. Cal. 2004). Moreover, foreclosing on a deed of trust does not, by itself, implicate the RFDCPA. See e.g. Benham v. Aurora Loan Servs., 2009 U.S. Dist. LEXIS 78384, at *6 (N.D. Cal. Sept. 1, 2009) (dismissing plaintiff's complaint "because foreclosing property pursuant to a deed of trust is not the collection of a debt within the meaning of the RFDCPA"); Ricon v. Recontrust Co., 2009 U.S. District LEXIS, 67807, at *9 (S.D. Cal. Aug. 4, 2009); Helper v. Wash. Mut. Bank, F.A., 2009 U.S. Dist. LEXIS 33883, at *11 (C.D. Cal. April 17, 2009).

Plaintiff's complaint fails to allege any fact that demonstrate how FFF or HLS violated the RFDCPA. Rosal v. First Fed. Bank of Cal., 2009 U.S. Dist. LEXIS 60400 (N.D. Cal. July 15, 2009) (dismissing the plaintiff's complaint where it did not allege facts giving rise to the inference that any of the defendants is a debt collector as defined by the RFDCPA nor assert what provisions of the RFDCPA defendants allegedly violated.) Plaintiff does not allege that FFF or HLS used threats, harassment, or profane language to collect a debt after the loan was made. Rather, Plaintiff alleges that Defendants made "false reports to credit reporting agencies"*fn3 and a false statement of the debt. See FAC ¶70.

Further, because Plaintiff's allegations involve false representations, they sound in fraud, and are subject to Rule 9(b)'s heightened requirements. Kearns v. Ford Motor Co., 567 F.3d 1120, 1125-26 (9th Cir. 2009). Plaintiff does not satisfy these requirements. Allegations of fraud should specifically include "an account of the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007). Plaintiff does not include the above listed information required by Swartz. Also, Rule 9(b) "does not allow a complaint to merely lump multiple defendants together but require[s] plaintiffs to differentiate their allegations when suing more than one defendant... and inform each defendant separately of the allegations surrounding his alleged participation in the fraud." Swartz, 476 F.3d at 764-65. Here, Plaintiff lumps FFF, HLS, and MERS together and fails to distinguish the defendants' particular roles in these representations.

Thus, Defendants' motion to dismiss Plaintiff's claim for violation of RFDCPA is granted as to FFF and HLS with leave to amend.

With respect to MERS, MERS's foreclosure related actions (i.e. directing Defendant Cal-Western to file a Notice of Default) do not implicate the RFDCPA. As discussed above, "[T]he law is clear that foreclosing on a property pursuant to a deed of trust is not a debt collection within the meaning of the RFDCPA or the FDCA." Gamboa v. Tr. Corps & Cent. Mortg. Loan Servicing Co., 2009 U.S. Dist. LEXIS 19613, at *11 (N.D. Cal. Mar. 12, 2009); see Tapia v. Aurora Loan Servs., LLC, 2009 U.S. Dist. LEXIS 82063, at *5-*6 (E.D. Cal. Aug. 25, 2009).

For the above reasons, dismissal is clearly appropriate. Given the identities of the Defendants and the FAC's factual basis, amendment would be futile, so dismissal will be without leave to amend as to MERS.

III. Third Claim for Relief-Negligence

Plaintiff contends that Defendants HLS, FFF, BOA, and MERS breached a duty of care to the Plaintiff when they failed to maintain the original mortgage note, failed to properly create original documents, failed to make required disclosures to the Plaintiff and instituted foreclosure proceedings wrongfully. See FAC ΒΆ77. Plaintiff also contends that these Defendants breached their duty when they took payments to which they were not entitled ...

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