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Sipe v. Mortgage Company

February 16, 2010


The opinion of the court was delivered by: Oliver W. Wanger United States District Judge



Before the court are two motions to dismiss. One motion is brought by Defendant Sierra Pacific Mortgage Company Inc. ("Sierra Pacific") and another is brought collectively by Defendants Countrywide Bank ("Countrywide") and Mortgage Electronic Registration Systems, Inc. ("MERS"). The motions are directed at the claims asserted by Plaintiff Vincent Sipe ("Plaintiff") in his First Amended Complaint ("FAC" or "complaint"). The following background facts are taken from the FAC and other documents on file in this case.


A. General Background

This is a mortgage fraud case concerning Plaintiff's residential property located in Coarsegold, California. On or about May 2006, Defendant Carol Desilva, a loan officer for Defendant Financial Advantage Inc., approached Plaintiff about a refinance loan on his residence. Desilva "advised" Plaintiff that she could get the "best deal" and the "best interest rates" on the market. Plaintiff applied for the loan, and he accurately described his income and provided Desilva with income-related documentation, including income bank statements, W-2s, and 1099s. On Desilva's loan application, however, Plaintiff's monthly income was "fraudulently overstated." Desilva advised Plaintiff that Desliva could get him 100% financing for his residence and that his loan would be fixed for thirty (30) years at a 2.15% interest rate. Desilva, however, actually sold Plaintiff a five-year fixed loan with an adjustable rate rider. Defendant Sierra Pacific served as the lender.

On or about May 11, 2006, Plaintiff completed the loan on his property. The terms of the loan were memorialized in a Promissory Note, which was secured by a Deed of Trust on the property. The Deed of Trust identified Sierra Pacific as the lender and MERS as the lender's nominee and beneficiary.

Plaintiff, allegedly, was not given a copy of "any of the loan documents prior to closing." At the closing, Plaintiff was only given a few minutes to sign the documents and was not "allowed to review them." Plaintiff also did not receive "the required copies of a proper notice of cancellation." Plaintiff now wants to rescind the loan.

Plaintiff asserts that his loan was part of a larger "scheme" perpetrated by "Defendants" pursuant to which they sold home loans on the "secondary market." Once on the secondary market, "Defendants" allegedly "pooled" these loans into trusts and issued new securities backed by the pool. As part of this scheme, Sierra Pacific's borrowers, including Plaintiff, "were steered and encouraged into loans with terms unfavorable to them, or loans which the borrowers... were not qualified to obtain."

B. Procedural History And Plaintiff's Claims

Plaintiff filed an initial complaint on May 5, 2009. (Doc. 1.)

The initial complaint included claims for a violation of the Truth In Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., and a violation of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2605 et seq. In August 2009, Defendant Sierra Pacific filed a motion to dismiss Plaintiff's initial complaint. In response, Plaintiff filed a FAC.

In the FAC, Plaintiff asserts causes of action for: (1) a violation of TILA; (2) a violation of the Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), California Civil Code § 1788 et seq.; (3) negligence; (4) a violation of RESPA; (5) breach of fiduciary duty; (6) fraud; (7) a violation of California Business and Professions Code § 17200 et seq.; (8) breach of contract; and (9) breach of the implied covenant of good faith and fair dealing. After Plaintiff filed his FAC, Sierra Pacific filed a motion to dismiss, and Countrywide and MERS also filed a separate motion to dismiss. In the FAC, federal question jurisdiction is invoked by the TILA and RESPA claims, and supplemental jurisdiction is asserted for the state law claims.

C. Defendants' Motions

Sierra Pacific moves to dismiss all claims against it, raising various arguments as to why each claim is insufficiently pled or legally barred. Countrywide and MERS move to dismiss the claims against them, raising numerous arguments as to why each claim is insufficiently pled. With respect to the fraud claim, Sierra Pacific, Countrywide, and MERS argue, among other things, that it fails to meet the pleading requirements of Rule 9(b).

Plaintiff filed untimely opposition briefs to both motions. The hearing date on the motions was continued to permit adequate time for reply briefing.*fn1


A. Motion To Dismiss

Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). To sufficiently state a claim for relief and survive a 12(b)(6) motion, the pleading "does not need detailed factual allegations" but the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Mere "labels and conclusions" or a "formulaic recitation of the elements of a cause of action will not do." Id. Rather, there must be "enough facts to state a claim to relief that is plausible on its face." Id. at 570. In other words, the "complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, __ U.S. __, 129 S.Ct. 1937, 1949 (2009) (internal quotation marks omitted). The Ninth Circuit has summarized the governing standard, in light of Twombly and Iqbal, as follows: "In sum, for a complaint to survive a motion to dismiss, the non-conclusory factual content, and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (internal quotation marks omitted). Apart from factual insufficiency, a complaint is also subject to dismissal under Rule 12(b)(6) where it lacks a cognizable legal theory, Balistreri, 901 F.2d at 699, or where the allegations on their face "show that relief is barred" for some legal reason, Jones v. Bock, 549 U.S. 199, 215 (2007).

In deciding whether to grant a motion to dismiss, the court must accept as true all "well-pleaded factual allegations" in the pleading under attack. Iqbal, 129 S.Ct. at 1950. A court is not, however, "required to accept as true 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); see, e.g., Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677, 683 (9th Cir. 2009). "When ruling on a Rule 12(b)(6) motion to dismiss, if a district court considers evidence outside the pleadings, it must normally convert the 12(b)(6) motion into a Rule 56 motion for summary judgment, and it must give the nonmoving party an opportunity to respond." United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). "A court may, however, consider certain materials-documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice-without converting the motion to dismiss into a motion for summary judgment." Id. at 908.

B. Rule 9(b)

Rule 9(b) imposes an elevated pleading standard for fraud claims. Rule 9(b) states:

In alleging fraud or mistake, particularity the circumstances constituting fraud or a party must state with mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.

"To comply with Rule 9(b), allegations of fraud must be specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud...." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (internal quotation marks omitted). Allegations of fraud must include the "time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." Id. (internal quotation marks omitted). The "[a]verments of fraud must be accompanied by the who, what, when, where, and how of the misconduct charged." Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (internal quotation marks omitted). A plaintiff alleging fraud "must set forth more than the neutral facts necessary to identify the transaction. The plaintiff must set forth what is false or misleading about a statement, and why it is false." Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (emphasis and internal quotation marks omitted).


A. TILA Claim

Plaintiff asserts a TILA claim against Sierra Pacific for damages and rescission. Sierra Pacific allegedly violated TILA by: "(a) failing to provide required disclosures prior to consummation of the transaction; (b) failing to make required disclosures clearly and conspicuously in writing; (c) failing to timely deliver to Plaintiff notices required by TILA; (d) placing terms prohibited by TILA into the transaction; and (e) failing to disclose all finance charge details and the annual percentage rate based upon properly calculated and disclosed finance charges and amounts financed." (Doc. 14 at 11.)

Sierra Pacific argues that Plaintiff's TILA claim for damages and rescission are both time-barred, and that the complaint fails to allege facts sufficient to demonstrate a right to rescission.

1. Damages Claim

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). Failure to satisfy TILA's requirements exposes a lender to "statutory and actual damages [that are] traceable to a lender's failure to make the requisite disclosures." Id.

A TILA claim for damages must be brought "within one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e); see also Beach, 523 U.S. at 412. For statute of limitations purposes, the "occurrence of the violation" takes place on the "consummation of the transaction." King v. California, 784 F.2d 910, 915 (9th Cir. 1986). Here, according to the complaint, the transaction was consummated "on or about May 11, 2006." (Doc. 14 at 7.) Plaintiff had until May 2007 to file his TILA claim for damages. Plaintiff, however, filed his TILA claim for damages on May 4, 2009, well past the deadline. (See Doc. 1.) Accordingly, Plaintiff's TILA claim for damages is time-barred absent equitable tolling.

As explained in King, TILA's one-year limitations period may be extended through equitable tolling:

[T]he limitations period in Section 1640(e) runs from the doctrine of equitable tolling may, in the appropriate date of consummation of the transaction but... the circumstances, suspend the limitations period until the discover the fraud or borrower discovers or had reasonable opportunity to of the TILA action. Therefore, as a general rule the nondisclosures that form the basis transaction. limitations period starts at the consummation of the specific claims of fraudulent concealment and equitable.

The district courts, however, can evaluate tolling to determine or frustrate the purpose of the Act and adjust if the general rule would be unjust limitations period accordingly. the 784 F.2d at 915. "Equitable tolling may be applied if, despite all due diligence, a plaintiff is unable to obtain vital information bearing on the existence of his claim." Santa Maria v. Pac. Bell, 202 F.3d 1170, 1178 (9th Cir. 2000); see also Garcia v. Brockway, 526 F.3d 456, 465 (9th Cir. 2008). "Fairness, without more, is not sufficient justification to invoke equitable tolling...." Garcia, 526 F.3d at 466.

Here, Sierra Pacific's failure to make TILA disclosures and alleged misconduct -- including its failure to "make required disclosures clearly and conspicuously in writing," and its placement of "terms prohibited by TILA into the transaction" -- occurred, if at all, by the time of the loan transaction in May 2006. With the transaction completed and the loan documents in hand, Plaintiff could have reviewed them and discovered whether illegal terms were included in the loan transaction, or whether the disclosures to be included in the transaction were unclear, omitted or otherwise problematic, and then filed suit within the one-year limitations period.

In Meyer v. Ameriquest Mortgage Co., 342 F.3d 899, 902 (9th Cir. 2003), the court rejected the application of equitable tolling to a TILA damages claim asserted against a lender. The court reasoned:

The failure to make the required disclosures occurred, if at all, at the time the loan documents were signed. The Meyers were in full possession of relevant to the discovery of a TiLA violation and a § all information signed. The Meyers have produced 1640(a) damages claim on the day the loan papers were undisclosed credit terms, or of fraudulent concealment or no evidence of other action Meyers from discovering their claim. on the part of Ameriquest that prevented the Plaintiff argues equitable tolling should apply because, as alleged, he was not "allowed to review" the loan documents "at closing," they were not explained to him at closing, and he was not given a copy of them prior to closing. (Doc. 14 at 6.) Even assuming this is true, Plaintiff does not explain why immediately after the closing, when he had the loan documents, he could not have reviewed them that same day (or at any point thereafter) and, with or without the assistance of others, discovered the alleged TILA violations.

Plaintiff also argues that equitable tolling should apply because, as alleged, "[t]he facts surrounding this loan transaction were purposely hidden to prevent Plaintiff from discovering the true nature of the transaction and the documents involved therein. Facts surrounding the transaction continue to be hidden from Plaintiff to this day." (Doc. 14 at 7.) This conclusory allegation may relate to the averment in the TILA claim that Sierra Pacific failed to "disclose all finance charge details" and "the annual percentage rate based upon a properly calculated and disclosed finance charges and amounts financed." Plaintiff does not, however, allege what facts were "purposely hidden" from Plaintiff to prevent discovery of his TILA claim.

Plaintiff's allegation that the "facts surrounding this loan transaction were purposely hidden to prevent Plaintiff from discovering the true nature of the transaction and the documents" and "continue to be hidden from Plaintiff to this day" is a legal conclusion, and the complaint does not assert how the "hidden facts" prevented him from discovering the alleged TILA violations or how they relate to the alleged TILA violations committed by Sierra Pacific. Facts sufficient to invoke equitable tolling have not been alleged.

Plaintiff's TILA claim for damages is time-barred absent equitable tolling. Defendant Sierra Pacific's motion to dismiss, on the grounds that this claim is barred by the statute of limitations, is GRANTED WITH LEAVE TO AMEND. Plaintiff shall have one opportunity to allege what facts were hidden that prevented him from discovering his claim, and ...

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