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Peay v. Midland Mortgage Co.

February 2, 2010



Plaintiffs Derald Peay and Debra Peay ("the Peays") filed this action against Midland Mortgage Company ("Midland"), Mortgage Process Center ("Mortgage Process"), Quality Loan Service Corp. ("Quality Loan"), Mortgage Electronic Registration Systems, Inc. ("MERS"), U.S. Bank National Association ("U.S. Bank"), Ron Allen and Associates, Ronnie D. Allen, and Marissa Baco alleging various state and federal claims relating to loans they obtained to refinance their home in Grass Valley, California. In their Second Amended Complaint ("SAC"), plaintiffs assert ten causes of action against eight defendants.

Midland and U.S. Bank move to dismiss plaintiff's SAC pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Midland and U.S. Bank's Motion to Dismiss challenges only the causes of action that apply to them. (Mot. to Dismiss at 2.) Plaintiffs did not oppose the motion. Nor did plaintiffs file a statement of non-opposition pursuant to Local Rule 230(c). Therefore, the hearing date of January 19, 2010 is VACATED pursuant to Eastern District Local Rule 230(c), and the court takes defendants' motion to dismiss under submission without oral argument.

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, 127 S.Ct. 1955, 1974 (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).

A. Fraud

In California, the essential elements of a claim for fraud are "(a) a misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or 'scienter'); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage." In re Estate of Young, 160 Cal. App. 4th 62, 79 (2008). Under the heightened pleading requirements for claims of fraud under Federal Rule of Civil Procedure 9(b), "a party must state with particularity the circumstances constituting the fraud." Fed. R. Civ. P. 9(b). The plaintiffs must include the "who, what, when, where, and how" of the fraud. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1006 (9th Cir. 2003) (citation omitted). "The plaintiff must set forth what is false or misleading about a statement, and why it is false." Decker v. Glenfed, Inc., 42 F.3d 1541, 1548 (9th Cir. 1994). Additionally, "[w]here multiple defendants are asked to respond to allegations of fraud, the complaint must inform each defendant of his alleged participation in the fraud." Ricon v. Reconstrust Co., No. 09-937, 2009 WL 2407396, at *3 (S.D. Cal. Aug. 4, 2009) (quoting DiVittorio v. Equidyne Extractive Indus., 822 F.2d 1242, 1247 (2d Cir. 1987)).

Plaintiffs' cause of action for fraud suffers from the same problems noted by the court when it granted defendants' motion to dismiss plaintiffs' FAC: the SAC contains conclusory allegations with respect to defendant Midland and is silent with respect to defendant U.S. Bank. Specifically, plaintiffs allege that Midland did not give them notice that it had acquired the servicing rights to plaintiffs' mortgage, as required by law. (Id. ¶ 46.) Yet plaintiffs fail to state how or why this alleged failure to give proper notice states a claim for fraud. Secondly, plaintiffs admit that Midland is their loan servicer, yet allege that Midland had no legal right to collect monies from them. (See SAC ¶¶ 8, 32, 46, 50, 70.) Plaintiffs fail to state why Midland did not have the right to service their loan; instead, plaintiffs generally allege that Midland "misrepresented material facts" regarding their right to service plaintiffs' loan, and allege that Midland was engaged in a civil conspiracy with the other defendants in this case. (Id. ¶¶ 60, 62, 70.) Plaintiffs further allege that Midland fraudulently added improper costs and charges to the amount owed by the plaintiffs. (Id. ¶ 58.) These vague allegations are mere conclusions that do not enjoy a presumption of validity on a motion to dismiss, nor do they attempt to meet the heightened pleading standards of Rule 9(b). Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).

Regarding U.S. Bank, the only conduct by them alleged in the SAC is that the trust into which plaintiffs' mortgage was pooled had a closing date of September 29, 2006, but the Assignment of Deed of Trust was recorded on November 18, 2008. (FAC ¶¶ 23-25, 48.) Plaintiffs make no effort, however, to plead the elements of fraud or to meet the heightened pleading standards of Rule 9(b). This cause of action will therefore be dismissed as to U.S. Bank.

B. Negligence

To prove a cause of action for negligence, plaintiffs must show "(1) a legal duty to use reasonable care; (2) breach of that duty, and (3) proximate [or legal] cause between the breach and (4) the plaintiff[s'] injure[ies]." Mendoza v. City of Los Angeles, 66 Cal. App. 4th 1333, 1339 (Ct. App. 1998) (citation omitted). "The existence of a legal duty to use reasonable care in a particular factual situation is a question of law for the court to decide." Vasquez v. Residential Invs., Inc., 118 Cal. App. 4th 269, 278 (2004).

Even though this court's November 13, 2009 Order stated that loan servicers do not owe a duty to the borrowers of the loans they service, plaintiffs again assert in their SAC that Midland owed them a duty of care. (SAC ¶ 123; see Docket No. 37 at 7-8); see also Watts v. Decision One Mortg. Co., No. 09-43 2009 U.S. Dist. LEXIS 59694 (S.D. Cal. July 13, 2009); Marks v. Ocwen Loan Servicing, No. 07-2133, 2009 WL 975792, at *7 (N.D. Cal. Apr. 10, 2009) ("[A] loan servicer does not owe a fiduciary duty to a borrower beyond the duties set forth in the loan contract.") Midland, as the servicer of plaintiffs' loan, owed no special duty to prevent harm to plaintiffs, and so plaintiffs' cause of action for negligence must fail as to Midland.

Plaintiffs further allege that defendant Midland was negligent per se when it allegedly violated the statutory requirements of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2605(e), by failing to give proper notice that it had obtained the servicing rights to plaintiffs' mortgage and by failing to respond to plaintiffs' Qualified Written Request ("QWR") for information relating to the servicing of their mortgage. (FAC ¶ 123.) Negligence per se is an evidentiary presumption that a party failed to exercise due care if:

(1) he violated a statute, ordinance, or regulation of a public entity;

(2) the violation proximately caused death or injury to a person or property;

(3) the death or injury resulted from an occurrence of the nature within the statute, ordinance, or regulation ...

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