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Kravich v. Wells Fargo Home Mortgage

February 10, 2010


The opinion of the court was delivered by: Garland E. Burrell, Jr. United States District Judge


On July 14, 2009, Defendant First American Loanstar Trustee Services ("Loanstar") filed a motion to dismiss Plaintiffs' First Amended Complaint ("FAC") for failure state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6), and for failure to allege the fraud claims with particularity under Federal Rule of Civil Procedure 9(b).*fn2 (Docket No. 14.) On July 27, 2009, Defendant Wells Fargo Home Mortgage, a division of Wells Fargo Bank, N.A. ("Wells Fargo") also filed a motion to dismiss Plaintiffs' FAC under Rules 12(b)(6) and 9(b). (Docket No. 23.) Alternatively, Wells Fargo moves under Federal Rule of Civil Procedure 12(f) for an order striking certain allegations in the FAC.

I. Plaintiffs' Factual Allegations in Their First Amended Complaint

In June 2006, Plaintiffs Michael and Nancy Kravich sought to purchase the residential property located at 415 Verbena Court in Roseville, California. (FAC ¶ 7.) Plaintiffs met with Wells Fargo loan officer Lawrence Ordonio, who informed Plaintiffs he could get them the "best deal" and the "best interest rates" available on the market. (FAC ¶ 23.) Plaintiffs requested a single 30-year loan with a fixed interest rate. (FAC ¶ 25.) "Just prior to closing," Plaintiffs agreed to a loan package including a "first mortgage" to cover 80% of the home and a "second mortgage" to cover 20% of the home. (Id.) Ordonio informed Plaintiffs that the first mortgage would be a fixed rate loan for two years and would then adjust downward and Plaintiffs' monthly payments would decrease. (Id.) Ordonio assured Plaintiffs that if payments ever became unaffordable, Wells Fargo would refinance both loans. (FAC ¶ 27.)

Plaintiffs were not given a copy of the loan documents prior to closing as required, and at the time of closing, Plaintiffs were rushed to sign the documents. (FAC ¶ 28.) The loan documents were never explained to Plaintiffs, Plaintiffs were never given an opportunity to review them, and Plaintiffs never received the required copies of the notice of cancellation. (FAC ¶¶ 28-29.)

On or about July 21, 2006, Plaintiffs completed the loan transaction. (FAC ¶ 30.) The terms of the loans were included in two promissory notes, each secured by a deed of trust on the property. (Id.) The first deed of trust identified Fidelity National Title Insurance Company as the trustee and Wells Fargo as the lender. (Id.) The second deed of trust identified Kirk Smith as the trustee and Southstar Funding LLC as the lender. (Id.) The deeds of trust also identified Mortgage Electronic Registration Systems, Inc. as the named nominee and beneficiary. (FAC ¶ 31.)

In August 2008, the interest rates on Plaintiffs' loans adjusted upward and the monthly payments increased substantially. (FAC ¶ 32.) Plaintiffs contacted Wells Fargo and were told they were not eligible to refinance their mortgage. (Id.) Plaintiffs then contacted Tony Manos, an independent loan modification agent, to discuss negotiating a loan modification. (FAC ¶ 33.) Manos contacted Wells Fargo and was told that because Plaintiffs were current on their loan, they were not eligible for a loan modification. (Id.) Subsequently, Plaintiffs failed to make four consecutive loan payments, and began negotiating a loan modification with Wells Fargo. (FAC ¶ 34.) Wells Fargo offered to modify Plaintiffs' loan by adding $25,000 principle onto the loan, and fixing the interest rates at 5.5% on the first loan and 9.5% on the second loan. (FAC ¶ 35.) On November 12, 2008, Loanstar filed a Notice of Default. (FAC ¶ 34.) In the Notice of Default Loanstar "claimed that it was the duly appointed trustee pursuant to the deed of trust." (FAC ¶ 23.) Plaintiffs agreed to the principle increase and fixed rates proposed by Wells Fargo to prevent foreclosure. (FAC ¶ 36.)

Plaintiffs sent a Qualified Written Request ("QWR") to Wells Fargo pursuant to the Real Estate Settlement Procedures Act ("RESPA") on March 31, 2009, in which Plaintiffs demanded rescission of both loans under the provisions of the Truth in Lending Act ("TILA"). (FAC ¶ 37.)

Plaintiffs allege the following claims: (1) violation of TILA, 15 U.S.C. §§ 1601 et seq.; (2) violation of the Rosenthal Fair Debt Collection Practices Act ("RFDCPA"); (3) negligence; (4) violation of RESPA, 12 U.S.C. §§ 2601, et seq.; (5) breach of fiduciary duty; (6) fraud; (7) violation of California Business and Professions Code § 17200; (8) breach of contract; (9) breach of the implied covenant good faith and fair dealing; and (10) wrongful foreclosure. For the following reasons, Defendants' motions to dismiss are GRANTED.

II. Legal Standard

"A Rule 12(b)(6) motion tests the legal sufficiency of a claim." Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). To avoid dismissal, Plaintiffs must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). When considering a dismissal motion, all "allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party." Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002). However, this "tenet . . . is inapplicable to threadbare recitals of a cause of action's elements, supported by mere conclusory statements." Ashcroft v. Iqbal, 556 U.S. ---, 129 S.Ct. 1937, 1940 (2009).

III. Analysis

B. Truth in Lending Act

1. Damages

Wells Fargo seeks dismissal of the civil damages portion of Plaintiffs' TILA claim, arguing it is time barred. (Wells Fargo Mot. to Dismiss ("Mot.") 4:10-12.) TILA prescribes that any action for damages may be brought "within one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e). "[A]s a general rule the limitations period starts at the consummation of the transaction." King v. California, 784 F.2d 910, 915 (9th Cir.1986)).

Plaintiffs allege the TILA violations occurred on July 21, 2006, the date Plaintiffs entered into the loan agreement with Defendants and consumed the loan transaction. Since Plaintiffs did not bring their TILA damages claim until April 17, 2009, which is more than one year after July 21, 2006, this claim was brought after the one-year statute of limitations period.

Plaintiffs argue this limitations period is equitably tolled since "the facts surrounding the loan transaction were purposefully hidden and continue to be hidden from them to this day." (Plt.'s Opp'n to Mot. ("Opp'n") 5:15-23.) The Ninth Circuit has held "that equitable tolling [of TILA civil damages claims] may, in appropriate circumstances, suspend the limitations period until the borrower discovers or has reasonable opportunity to discover the fraud or non-disclosures that form the basis of the TILA action." King, 784 F.2d at 915. Plaintiffs have not alleged facts explaining why they did not discover the fraud or non-disclosures that form the basis of the TILA action within the limitations ...

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