The opinion of the court was delivered by: Anthony W. Ishii Chief United States District Judge
ORDER ON DEFENDANTS' MOTION TO DISMISS (Doc. No. 39)
This case stems from a loan obtained by Plaintiff Gwendolyn Johnson ("Johnson") from 1st Choice Mortgage. The loan is now in default. Johnson filed suit in this Court. The Second Amended Complaint ("SAC") is the operative complaint. See Court's Docket Doc. No. 32. The SAC allege violations of the Truth in Lending Act ("TILA") (15 U.S.C. § 1601 et seq.), the Real Estate Settlement Procedures Act ("RESPA) (12 U.S.C. § 2605 et seq.) and various state law claims. JPMorgan Chase ("Chase"),*fn1 California Reconveyance Co. ("CRC"), and Mortgage Electronic Registration System, Inc. ("MERS") move to dismiss the claims against them. For the reasons that follow, the motion will be granted.
From the SAC, this case involves the purchase of real property located at 537 Henley Parkway, Patterson, California. In March 2006, Defendant Frazier approached Johnson and said that she could get Johnson the best interest rates. When Johnson applied for the loan, she accurately described her income and provided appropriate documentation. However, without Johnson's knowledge or consent, Frazier overstated Johnson's income on the loan application by approximately $8,000. Frazier hid this deception and advised Johnson that she could get Johnson 100% financing and that the loan would be fixed at a 1.5% interest rate. However, Frazier actually sold Johnson two adjustable rate loans. The first loan was for $400,000 with a 1.5% interest rate for the first two months and that adjusted to 9.950%. The second loan was for $88,475 and adjusted from 12.5% to 18%. Frazier advised that if the loan ever became unaffordable, she would simply refinance it into an affordable loan. Johnson was not given a copy of the loan documents prior to closing and, at closing, was only given a few minutes to sign the documents.
On March 31, 2006, Johnson completed the loans on the property. The terms of the loans were memorialized in two promissory notes, which were secured by two deeds of trust on the Patterson, California property. Both deeds of trust identified Old Republic Title Company as the Trustee, 1st Choice as the Lender, and MERS as the Nominee for the Lender and as beneficiary. Following this, various assignments of the first deed of trust to other defendants occurred.*fn2
Subsequent to the closing on the mortgage loan, Defendant Washington Mutual ("WAMU") began demanding mortgage payments. WAMU never gave notice that it had acquired servicing rights. Johnson's initial monthly payments of $1,380.48 rose to $4002.16 per month, and continued to increase.
On February 2, 2009, a notice of default was filed with the Stanislaus County Recorder. On May 26, 2009, Defendant CRC noticed the Trustee Sale on Johnson's property. On June 2, 2009, Defendant CRC issued and recorded a Trustee's Deed Upon Sale to Defendant U.S. Bank, which identifies U.S. Bank as the foreclosing beneficiary. This lawsuit followed.
Defendants have submitted a Request for Judicial Notice ("RJN"). The Court will grant the RJN as to documents that were filed with the Stanislaus County Recorder. See United States v. 14.02 Acres, 547 F.3d 943, 955 (9th Cir. 2008).
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." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009); 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 it may take judicial notice of public records outside the pleadings, review materials which are properly submitted as part of the complaint, and review documents that are incorporated by reference in the Complaint if no party questions their authenticity. See Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005); 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).
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 where amendment would be futile. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).
1. Chase's Liability for Conduct of WAMU
Johnson contends that Chase is liable for WAMU's conduct because Chase is WAMU's successor in interest. However, on September 25, 2008, Federal Deposit Insurance Corporation ("FDIC") was appointed receiver over WAMU. The FDIC sold certain assets and liabilities of WAMU to FDIC. As part of the agreement, Chase expressly disclaimed assumption of liability arising from borrower claims. Instead, such claims are left as the responsibility of FDIC. Johnson's claims involving WAMU are not viable against Chase.
Johnson argues that Chase's argument is based on documents which may not be judicially noticed and thus, may not be considered under a Rule 12(b)(6) motion. Johnson also states that Chase's liability is not based on a loan or commitment to loan by WAMU. The SAC identifies WAMU as a servicer, not a lender.
Chase requests that the Court take judicial notice of the Purchase and Assumption Agreement ("PAA") between itself and the FDIC. Johnson states that she filed objections to Chase's request for judicial notice. However, no such objections have been filed. Johnson's argument in opposition simply states that she incorporates the objections by reference. Courts have taken judicial notice of the PAA. See Victoria v. JPMorgan Chase Bank, 2009 U.S. Dist. LEXIS 123538, *5 (E.D. Cal. Dec. 28, 2009); Allen v. United Fin. Mortg. Corp., 2009 U.S. Dist. LEXIS 83680, *6 (N.D. Cal. Sept. 15, 2009). The Court will take judicial notice of the PAA.
Under the PAA, Chase is not liable for "borrower claims." See Yeomalakis v. FDIC, 562 F.3d 56, 60 (1st Cir. 2009); Molina v. Wash. Mut. Bank, 2010 U.S. Dist. LEXIS 8056, 10-11 (S.D. Cal. Jan. 29, 2010); Victoria, 2009 U.S. Dist. LEXIS 123538 at *3-*6; Hilton v. Wash. Mut. Bank, 2009 U.S. Dist. LEXIS 100441, *8 (N.D. Cal. Oct. 28, 2009); PAA at ¶ 2.5. However, Chase does not reply to Johnson's argument that WAMU is alleged to be a servicer and not a lender. This argument is significant because the PAA discusses servicing of mortgages. Paragraph 2.1 of the PAA states in part, "Notwithstanding Section 4.8, [Chase] specifically assumes all mortgage servicing rights and obligations of [WAMU]." At least three courts have suggested that this Paragraph transfers liability to Chase for WAMU's servicing activities. See Allen, 2009 U.S. Dist. LEXIS 83680 at *14 n.7; In re Pena, 409 B.R. 847, 858, 861 (Bankr. S.D. Tex. 2009); Punzalan v. FDIC, 633 F.Supp.2d 406, 409-10 (W.D. Tex. 2009). As one court has explained, "the [PAA] appears to allocate WAMU's lender liability to the FDIC and to transfer WAMU's servicing liability to JPMorgan Chase." In re Pena, 409 B.R. at 861. Without further briefing from Chase regarding Paragraph 2.1, and in light of the allegation that WAMU was acting as a "servicer," the Court cannot hold at this time that the PAA eliminates Chase's liability for WAMU's conduct in this case. Dismissal of claims that are based on WAMU's servicing activities is not appropriate at this time.*fn3 See Allen, 2009 U.S. Dist. LEXIS 83680 at *14 n.7; In re Pena, 409 B.R. at 861; PAA at ¶ 2.1.
2. Second Cause of Action -- Rosenthal Fair Debt Collection Practices Act
Defendants argue that, as a matter of law, the collection of debt or foreclosure of real property due to Johnson's default does not constitute "debt collection" activity. A lender enforcing its security interest under a deed of trust is not covered activity.
Johnson argues that unlawful debt collecting activities during foreclosure are actionable. Even if foreclosure itself does not constitute debt collection, the SAC alleges unfair conduct beyond foreclosure, such as sending deceptive letters, making phone calls, making false credit reports, falsely stating the amount of debt and to whom the debt ...