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Quintero Family Trust v. OneWest Bank

January 27, 2010


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


Currently before the Court are Motions to Dismiss brought by: (1) OneWest Bank, F.S.B. and IndyMac Mortgage Services (collectively, "OneWest"); and (2) Clarion Mortgage Capital, Inc. ("Clarion"). For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Defendants' Motions to Dismiss.


I. Factual Background

George Hannibal Quintero and Celia G. Quintero ("Quinteros") are the owners of certain real property commonly known as 4180 EAST CANTERBURY DRIVE, SAN DIEGO, CA 92116 ("Property").They allege Defendants Bill Laney and his business entity, Home Asset Mortgage, with the aid of the other Defendants, targeted them for a series of loans and refinances over the years and as a result have stripped their house of all equity.*fn1 (FAC ¶ 1.) According to Quinteros, Laney and Home Asset befriended them and persuaded them to finance up to 100% of the equity in the Property so that the money could be invested in other real property in hopes of gaining rental income. (Id. ¶ 18.) The central focus of the litigation is the last refinance, which occurred in October-November 2006.

On October 31, 2006, Quinteros obtained a loan from Defendant Clarion in the amount of $821,000.00. The loan was recorded on November 20, 2006. Allegedly, the loan was immediately sold by Clarion to IndyMac Bank, F.S.B.It's unclear what happened afterwards. It appears the notice of the proposed assignment was sent to Plaintiffs some time before January 1, 2007, but the assignment of the Deed of Trust was not recorded until March 20, 2009. (Def. Clarion's RJN, Ex. B.)That assignment, which was notarized on March 10, 2009, lists December 18, 2008 as the effective date. (Id.) Subsequently, on September 28, 2009, IndyMac assigned the loan to HSBC Bank USA, N.A. (Pl. Ex Parte Appl., Ex. C [Doc. No. 45].)This new assignment was recorded on November 2, 2009. (Id.)

On December 19, 2008, IndyMac executed a Substitution of Trustee, substituting Quality Loan Service as a trustee under the Deed of Trust. (Clarion's RJN, Ex. D.) The Substitution of Trustee was recorded on February 25, 2009. (Id.) On January 13, 2009, Quality Loan Services--acting as an agent for the beneficiary--recorded and served a Notice of Default on the Property. (Id., Ex. C.) On April 15, 2009, Quality Loan Service recorded a Notice of Trustee's Sale of the Property in the amount of $902,529.50, setting May 4, 2009 as the date of sale. (Id., Ex. E.) The Quinteros subsequently filed a Chapter 13 bankruptcy on May 2, 2009, thereby staying the foreclosure sale. (FAC ¶ 47.) In October 2009, the bankruptcy court dismissed Plaintiffs' Chapter 13 case.

II. Procedural Background

The Quinteros commenced the present action on July 17, 2009, and filed a First Amended Complaint ("FAC") on August 20, 2009, alleging fifteen causes of action against Defendants. Since then, OneWest and Clarion (together, "Moving Defendants") filed their Motions to Dismiss pursuant to Fed. R. Civ. P. 12(b)(6). [Doc. Nos. 8, 11].The hearings on these motions have been consolidated and continued to January 13, 2010. In the interim, Plaintiffs filed an Ex Parte Application seeking expedited discovery to allow them to respond to the Motions to Dismiss. [Doc. No. 15]. On October 16, 2009, the Court granted in part and denied in part Plaintiffs' Ex Parte Application. [Doc. No. 23]. Specifically, the Court granted Plaintiffs' request for "disclosure of the complete mortgage loan files in the Defendants' possession, including but not limited to the promissory note and the trust deed." (Order on Ex Parte Appl. for Expedited Discovery, at 3 [Doc. No. 23].)

On November 12, 2009, Plaintiffs filed a Motion for Temporary Restraining Order ("TRO") and Preliminary Injunction, asking the Court to enjoin Defendants from conducting a trustee's sale of the Property, at least until the matter can be considered on the merits. (Pl. TRO Motion, at 12.) The Court granted Plaintiffs' motion on the same day, entering a TRO and setting November 25, 2009 as the hearing date on the preliminary injunction. [Doc. No. 33]. On November 25, 2009, after holding a hearing on the preliminary injunction, the Court granted Plaintiffs' request for a preliminary injunction as to all Defendants, except Defendant Clarion. [Doc. No. 43]. In entering the preliminary injunction, the Court determined that the security interest Defendants currently have in the Property was sufficient at the time. However, the Court also noted that it will revisit the issue of whether any additional security should be posted at the time of its ruling on the Motions to Dismiss.


A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the pleadings. A complaint survives a motion to dismiss if it contains "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). The court may dismiss a complaint as a matter of law for: (1) "lack of cognizable legal theory," or (2) "insufficient facts under a cognizable legal claim." SmileCare Dental Group v. Delta Dental Plan of Cal., 88 F.3d 780, 783 (9th Cir. 1996) (citation omitted). The court only reviews the contents of the complaint, accepting all factual allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009) (citation omitted).

Despite the deference, the court need not accept "legal conclusions" as true. Ashcroft v. Iqbal, --- U.S. ---, 129 S.Ct. 1937, 1949-50 (2009). It is also improper for the court to assume "the [plaintiff] can prove facts that [he or she] has not alleged." Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). On the other hand, "[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." Iqbal, 129 S.Ct. at 1950.


Plaintiffs' FAC alleges fifteen causes of action. In their Motions to Dismiss, Defendants ask the Court to dismiss all of the causes of action for failure to state a claim upon which relief can be granted. In their opposition, Plaintiffs indicate that they do not oppose dismissal, without prejudice, of the following causes of actions against specific Defendants: (1) the second and third causes of action against all Defendants, except Quality Loan, OneWest, IndyMac Bancorp, and IndyMac Mortgage Services; (2) the fourth cause of action against all Defendants; (3) the sixth cause of action against Laney, Breakthrough Marketing, and Home Asset Mortgage; (4) the seventh cause of action against Clarion, OneWest, IndyMac, and Quality Loan; and (5) the eleventh, twelfth, and thirteenth causes of action against all Defendants. (Pl. Opp., at 2-3.)

I. First Cause of Action--TILA Violation (against Defendants IndyMac Bank, IndyMac, Bancorp, Clarion, and OneWest)

Plaintiffs' first cause of action alleges Defendants violated the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601 et seq., and Regulation Z, 12 C.F.R. 226, by failing to make some material disclosures, or failing to accurately disclose, and by "making consumer credit disclosures that do not reflect the terms of the legal obligation between the parties." (FAC ¶ 52.)

A. TILA Claim for Rescission

Section 1635 governs the borrower's right under TILA to rescind a "consumer credit transaction . . . in which a security interest . . . is or will be retained or acquired in any property which is used as the principal dwelling of the person to whom credit is extended." 15 U.S.C. § 1635(a). While the borrower's right of rescission must normally be exercised within a three-day period, TILA extends that period to three years where the lender fails to provide the borrower with certain "material disclosures."*fn2 See id. § 1635(f); 12 C.F.R. §§ 226.15(a)(3), 226.23(a)(3).

In the present case, contrary to Defendants' arguments, Plaintiffs can take advantage of the longer three-year period under Section 1635(f). Plaintiffs' FAC alleges Defendants have failed to provide them with some material disclosures, or have provided them with inaccurate disclosures. (See FAC ¶ 52.) In particular, Plaintiffs allege Defendants did not disclose, or did not accurately disclose, the following information: (a) the amount financed; (b) the finance charge; (c) the annual percentage rate; (d) the payment schedule; (e) the total payments; (f) whether or not penalty may be imposed if the obligation is prepaid in full; and (g) any dollar or percentage charge that may be imposed before maturity due to a late payment, other than a deferral or extension charge.*fn3 (Id.) These allegations, if true, would entitle Plaintiffs to rescind the loan within three years. See 15 U.S.C. § 1635(f); 12 C.F.R. § 226.15(a)(3). Accordingly, because the loan was recorded in November 2006, and Plaintiffs filed their complaint in July 2009, Plaintiffs' TILA claim for rescission does not appear to be time-barred, and the Court DENIES Defendants' Motions to Dismiss as they relate to this claim.*fn4

B. TILA Claim for Damages

On the other hand, Plaintiffs' TILA claim for damages appears to be time-barred. Section 1640(e) provides that a claim for damages under TILA must be commenced within one year following the date of the alleged violation. 15 U.S.C. § 1640(e); see also Lynch v. RKS Mortgage Inc., 588 F. Supp. 2d 1254, 1259 (E.D. Cal. 2008). The date of violation refers to the date of the consummation of the transaction, unless the doctrine of equitable tolling applies. King v. State of Cal., 784 F.2d 910, 915 (9th Cir. 1986). In the present case, because the loan transaction occurred in November 2006, Plaintiffs' TILA claim for damages is clearly time-barred. There is also no indication that the doctrine of equitable tolling applies. Accordingly, the Courtwill GRANT Defendants' motions in this respect and will DISMISS WITH PREJUDICE Plaintiffs' TILA claim for damages.

C. Ability to Tender

Finally, the Court will not require Plaintiffs to demonstrate an ability to tender at this stage of the proceedings. Section 1635(b) governs the rescission-tender sequence "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." Yamamoto v. Bank of N.Y., 329 F.3d 1167, 1170 (9th Cir. 2003). The decision on whether to depart from this sequence is left to the discretion of the district court, and must be approached on a "case-by-case basis." Id. at 1173 (concluding the district court did not abuse its discretion in reversing the rescission-tender sequence where it was "clear from the evidence that the borrower lacks capacity to pay back what she has received").

In the present case, because of the "egregious" facts alleged and because the balance of equities weighs in Plaintiffs' favor, the Court refuses to alter the statutorily-provided sequence. See id. (noting that the decision on whether to alter the sequence depends upon "'the equities present'"); LaGrone v. Johnson, 534 F.2d 1360, 1362 (9th Cir. 1976) (mandating rescission to be conditioned on tender where TILA violations "were not egregious" and "the equities heavily favor[ed] creditors"). Accordingly, the Court will not require Plaintiffs to demonstrate a present ability to tender. The Court will, however, require Plaintiffs to allege, consistent with Fed. R. Civ. P. 11, their readiness to tender the proceeds of the loan if Plaintiffs do prevail on their TILA rescission claim.

II. Second Cause of Action--Violation of RFDCPA (against all Defendants)

Plaintiffs' second cause of action alleges Defendants violated California's Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), California Civil Code §§ 1788 et seq., by threatening to take actions prohibited by law, including: falsely stating the amount of debt; increasing the amount of debt by including amounts not permitted by law or contract; improperly foreclosing upon the subject property; and using unfair and unconscionable means in an attempt to collect a debt. (FAC ¶ 60.) Because Plaintiffs do not oppose dismissal of this cause of action as to Defendant Clarion, the Court will DISMISS WITHOUT PREJUDICE this cause of action against Clarion.

As for Defendants OneWest and IndyMac, to be liable for a violation of the FDCPA or the RFDCPA, they "must--as a threshold requirement--fall within the Act's definition of 'debt collector.'" See Izenberg v. ETS Servs., LLC, 589 F. Supp. 2d 1193, 1198 (C.D. Cal. 2008) (citing Heintz v. Jenkins, 514 U.S. 291, 294 (1995), and Romine v. Diversified Collection Servs., 155 F.3d 1142, 1146 (9th Cir. 1998)). The FDCPA provides that the term "debt collector" does not include any person who collects any debt owed or due to the extent such activity "concerns a debt which was not in default at the time it was obtained by such person." 15 U.S.C. § 1692a(6)(F)(iii). The definition of the "debt collector" under the RFDCPA is broader, and includes any person who collects a debt "on behalf of himself or herself or others." See CAL. CIV. CODE § 1788.2(c).

In the present case, even if OneWest and IndyMac are "debt collectors" under the RFDCPA's broader definition, Plaintiffs nonetheless failed to demonstrate their actions in this case are covered by the RFDCPA. Numerous district courts have held that "'the activity of foreclosing on a property pursuant to a deed of trust is not collection of a debt within the meaning of the FDCPA.'" Diessner v. Mortgage Elec. Reg. Sys., 618 F. Supp. 2d 1184, 1189 (D. Ariz. 2009) (citing cases); accord Izenberg, 589 F. Supp. 2d at 1193 (citations omitted). There is no indication, and Plaintiffs have supplied none, that the RFDCPA provides for a broader protection in this regard. See Tina v. Countrywide Home Loans, Inc., No. 08 CV 1233 JM (NLS), 2008 WL 4790906, at *7 (S.D. Cal. Oct. 30, 2008). Accordingly, the Court GRANTS OneWest's Motion to Dismiss in this regard and DISMISSES WITH LEAVE TO AMEND Plaintiffs' RFDCPA claim.

III. Third Cause of Action--Violation of FDCPA (against Defendant Quality Loan Services)

Plaintiffs' third cause of action alleges violations of the FDCPA, 15 U.S.C. §§ 1692 et seq., only against Defendant Quality Loan Services. (FAC ¶¶ 64-66.) There is no need to consider this cause of action at this ...

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