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Huestis v. Indymac Federal Bank


April 7, 2010


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


Defendant Mortgage Electronic Systems, Inc. ("MERS") filed a motion to dismiss Plaintiffs' First Amended Complaint ("FAC") under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted, and under Federal Rule of Civil Procedure 9(b) for Plaintiffs' failure to plead their fraud claim with sufficient particularity. Plaintiffs allege the following claims against MERS concerning a mortgage loan on Plaintiffs' residential property: (1) negligence; (2) fraud; (3) violation of California Business and Professions Code section 17200 et seq.; and (4) wrongful foreclosure. MERS seeks dismissal of Plaintiffs' claims against it, arguing "the FAC is vague and ambiguous and raises no cognizable claims for relief above the speculative level." (Mot. 6:3-4.)


A Rule 12(b)(6) motion "challenges a complaint's compliance with . . . pleading requirements." Champlaie v. BAC Home Loans Servicing, LP, No. S-09-1316 LKK/DAD, 2009 WL 3429622, at *1 (E.D. Cal. Oct. 22, 2009). A pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief . . . ." Fed. R. Civ. P. 8(a)(2). The complaint must "give the defendant fair notice of what the [plaintiff's] claim is and the grounds upon which relief rests . . . ." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Further, "[a] pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertions devoid of further factual enhancement." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009).

To avoid dismissal, the plaintiff must allege "only enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 547. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949. Plausibility, however, requires more than "a sheer possibility that a defendant has acted unlawfully." Id. "When 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." Id. (quotations and citation omitted).

In evaluating a dismissal motion under Rule 12(b)(6), the court "accept[s] as true all facts alleged in the complaint, and draw[s] all reasonable inferences in favor of the plaintiff." Al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). However, neither conclusory statements nor legal conclusions are entitled to a presumption of truth. See Iqbal, 129 S.Ct. at 1949-50.

MERS requests that judicial notice be taken of five documents related to Plaintiffs' mortgage loan which are publically recorded in the Official Records of El Dorado County: (1) the Deed of Trust recorded October 5, 2006; (2) the Notice of Default and Election to Sell recorded February 23, 2009; (3) the Notice of Trustee's Sale recorded June 2, 2009; (4) the Assignment of Deed of Trust recorded April 9, 2009; and (5) the Trustee's Deed Upon Sale recorded June 24, 2009. (Request for Judicial Notice ("RJN") Exs. 1-5.) "[A]s a general rule, a district court may not consider materials not originally included in the pleadings in deciding a Rule 12 motion[,] . . . [however,] it may take judicial notice of matters of public record and may consider them without converting a Rule 12 motion into one for summary judgment." United States v. 14.02 Acres of Land, 547 F.3d 943, 955 (9th Cir. 2008) (quotations and citations omitted). Exhibits 1-5 are publically recorded and may be considered in deciding MERS's dismissal motion. See Champlaie, 2009 WL 3429622, at *4 (finding judicial notice of recorded Notice of Default, Notice of Trustee's Sale, and Trustee's Deed Upon Sale proper).


Plaintiffs completed a mortgage loan on their "residential property . . . located at 3704 Malachite Way, Rescue, County of El Dorado, California" ("the Property") on or about September 27, 2006.

(FAC ¶¶ 8, 36.) "The terms of the Loan were memorialized in a promissory note, which was secured by a Deed of Trust on the Property." (FAC ¶ 37.) "The Deed of Trust identified Fidelity National Title Insurance Company as [t]rustee, and [] IndyMac Bank as [the] [l]ender." (Id.) The Deed of Trust also identified MERS as the beneficiary and nominee for the lender and the lender's successors and assigns. (Id. ¶ 38.) Plaintiffs allege MERS is "engaged in the business of holding title to mortgages." (Id. ¶ 10.)

MERS executed an Assignment of Deed of Trust on January 29, 2009, in which it assigned and transferred to IndyMac Federal Bank F.S.B. "all beneficial interest under . . . [the] Deed of Trust dated 9/27/2006 executed by [Plaintiffs] Mark Huestis and Diane G. Huestis . . . ." (RJN Ex. 4.) The Assignment was recorded on April 9, 2009. (Id.)


A. Plaintiffs' Negligence Claim

MERS argues Plaintiffs' negligence claim should be dismissed because "MERS does not owe a duty to Plaintiffs." (Id. 7:7.) Plaintiffs respond, "a general duty not to harm another is owed to everyone." (Opp'n 12:17.)

"The elements of a cause of action for negligence are: the defendant had a duty to use due care, . . . he or she breached that duty, and . . . the breach was the proximate or legal cause of the [plaintiffs'] resulting injure[ies]." Vasquez v. Residential Invs., Inc., 118 Cal. App. 4th 269, 278 (2004). "[T]he threshold element of a cause of action for negligence is the existence of a duty to use due care toward an interest of another . . . . Whether this essential prerequisite has been satisfied in a particular case is a question of law." Glenn K. Jackson, Inc. v. Roe, 273 F.3d 1192, 1196-97 (9th Cir. 2001) (quotations and citations omitted) (applying California law). "Under California law, 'as a general rule, a financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.'" Bledea v. Indymac Federal Bank, No. CIV S-09-1239 LKK/GGH, 2010 WL 715255, at *9 (E.D. Cal. Feb. 25, 2010) (citing and quoting Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal. App. 3d 1089, 1096 (1991)). "Thus, for a lender . . . to owe a duty of care, the lender's activities must have exceeded those of a conventional lender or the activities must fit within some exception to the 'general' rule." Id. (citations omitted).

Plaintiffs allege that "Defendants breached their duty of care to the Plaintiffs when they failed to maintain the original Mortgage Note, failed to properly create original documents, failed to make the required disclosures to Plaintiffs and instituted foreclosure proceedings wrongfully." (FAC ¶ 83.) Plaintiffs also allege Defendants "breached their duty of care . . . when they took payments to which they were not entitled, charged fees they were not entitled to charge, and made or otherwise authorized negative reporting of Plaintiffs' creditworthiness to various credit bureaus wrongfully." (FAC ¶ 84.)

"[T]aking payments, charging fees, and reporting on creditworthiness are conventional activities for a lender." Bledea, 2010 WL 715255,*10. These bare allegations do not show reason to depart from Nymark's general rule and impose a negligence duty of care "with respect to these activities. Even assuming, however, that such a duty of care exists, plaintiffs' allegations do not indicate that any of these acts were a breach of said duty." Id.

Nor have Plaintiffs cited "authority for the proposition that MERS owed plaintiffs a duty to maintain documents [or] perform its administrative duties . . . . Absent such authority, a pleading of an assumption of duty by MERS, or a special relationship, plaintiff[s] cannot establish MERS owed a duty of care." Baisa v. Indymac Federal Bank, No. CIV 09-1464 WBS JMF, 2009 WL 3756682, at *3 (E.D. Cal. Nov. 6, 2009) (citations omitted).

Additionally, "the FAC does not indicate which of the alleged actions apply to MERS. Defendant [MERS] should not be forced to guess how its conduct was allegedly negligent." Id. (citations omitted); see also Champlaie, 2009 WL 3429622, at *25 (dismissing negligence claim as to MERS supported by virtually identical allegations). Therefore, Plaintiffs' negligence claim against MERS is deficient and is dismissed.

B. Plaintiffs' Fraud Claim

MERS also seeks dismissal of Plaintiffs' fraud claim, arguing it is conclusory, does not differentiate between the named defendants, and fails to set forth required elements. (Mot. 9:12-27.) Plaintiffs respond, they have sufficiently pled their fraud claim. (Opp'n 13:23-27.)

Under California law, the elements of fraud are:

(1) misrepresentation (including, false representation, concealment, or nondisclosure); (2) knowledge of falsity; (3) intent to induce reliance; (4) justifiable reliance; and (5) resulting damage. Lazar v. Superior Court, 12 Cal. 4th 631, 638 (1996). However, a state fraud claim pled in federal court must satisfy Federal Rule of Civil Procedure 9(b)'s "particularity" requirements. Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1103 (9th Cir. 2003); see also Fed. R. Civ. P. 9(b) (requiring that "[i]n alleging fraud . . ., a party must state with particularity the circumstances constituting fraud"). Therefore, "[a]verments of fraud must be accompanied by 'the who, what, when, where and how' of the misconduct charged." Vess, 317 F.3d at 1106 (citation omitted). Further, "[t]he plaintiff must set forth what is false or misleading about a statement, and why it is false." Id. (citation omitted). Lastly, "Rule 9(b) does not allow a complaint to merely lump multiple defendants together but requires plaintiffs to differentiate their allegations when suing more than one defendant and inform each defendant separately of the allegations surrounding his alleged participation in the fraud." Swartz v. KPMG LLP, 476 F.3d 756, 764-65 (9th Cir. 2007) (quotations and citations omitted).

Plaintiffs allege "Defendants [] developed a scheme to rapidly infuse capital into the home mortgage lending system" by "pool[ing] mortgages into large trusts, securitizing the pool and selling these securities on Wall Street as mortgage backed securities . . . often for twenty or thirty times the original mortgage." (FAC ¶ 19.) However, "Plaintiff[s] ha[ve] not identified the role each defendant played in this fraudulent scheme, when and where the scheme occurred, or details on the specific misrepresentations involved in the fraudulent scheme." Sipe v. Countrywide Bank, -- F. Supp. 2d ---, 2010 WL 596322, at *13 (E.D. Cal. Feb. 16, 2010) (dismissing same fraud claim as to MERS for failure to satisfy Rule 9(b)).

Plaintiffs also allege:

MERS misrepresented to Plaintiffs on the Deed of Trust that it is a qualified beneficiary with the ability to assign or transfer the Deed of Trust and/or Note and/or substitute trustees under the Deed of Trust. Further, Defendant MERS misrepresented that it followed the applicable legal requirements to transfer the Note and Deed of Trust to subsequent beneficiaries.

(FAC ¶ 109.) Plaintiffs further allege these representations were false, Defendants intended that Plaintiffs rely on these misrepresentations, and that Plaintiffs reasonably relied on the misrepresentations. (FAC ¶¶ 111-114.) However, "[m]issing from the complaint are facts specifying the particular verbal or written misrepresentations at issue, when they were made, where they were made, and how or why there are false." Sipe, 2010 WL 596322, at *14; see also Morgera v. Countrywide Home Loans, Inc., No. 2:09-cv-01476-MCE-GGH, 2010 WL 160348, at *6 (E.D. Cal. Jan. 11, 2010) (dismissing same fraud claim as to MERS for failure to satisfy Rule 9(b) requirements); Webb v. Indymac Bank Home Loan Servicing, No. CIV 2:09-2380 WBS DAD, 2010 WL 121084, at *4 (E.D. Cal. Jan. 7, 2010) (same).

Further, Plaintiffs do not allege any resulting damages caused by MERS's alleged fraudulent conduct. "[T]he pleading must show a cause and effect relationship between the fraud and damages sought; otherwise no cause of action is stated." Commonwealth Mortg. Assurance Co. v. Superior Court, 211 Cal. App. 3d 508, 518 (1989). Plaintiffs merely allege in a conclusory fashion that Plaintiffs were "harmed and suffered damages" as a result of the fraud. (FAC ¶ 115.) "Absent facts to plausibly suggest a causal connection between the alleged fraud and some damage to Plaintiff[s], the fraud claim is insufficiently pled." Sipe, 2010 WL 596322, at *14. Therefore, Plaintiffs' fraud claim is deficient and is dismissed.

C. Plaintiffs' UCL Claim

MERS also seeks dismissal of Plaintiffs' claim under California Business and Professions Code section 17200 (the "UCL"), arguing Plaintiffs have failed to allege facts supporting this claim and that Plaintiffs have failed to identify a "pattern of behavior or course of conduct" within the meaning of the statute. (Mot. 11:1-12:25.) Plaintiffs counter that they have "alleged multiple violations . . . of specific statutory and common law provisions[,] . . . including claims for fraud and negligence[, which] are incorporated into Plaintiffs' UCL claim." (Opp'n 18:2-6.)

"To bring a UCL claim, a plaintiff must show either an (1) unlawful, unfair or fraudulent business act or practice, or (2) unfair, deceptive, untrue or misleading advertising. Because section 17200 is written in the disjunctive, it establishes three varieties of unfair competition - acts or practices which are unlawful, or unfair or fraudulent. A practice is prohibited as unfair or deceptive even if not unlawful or vice versa." Lippitt v. Raymond James Fin. Servs. Inc., 340 F.3d 1033, 1043 (9th Cir. 2003) (quotations and citations omitted). "[A]n action based on [Section 17200] to redress an unlawful business practice 'borrows' violations of other laws and treats these violations . . . as unlawful practices, independently actionable under section 17200 et seq. and subject to the distinct remedies provided thereunder." Farmers Ins. Exchange v. Superior Court, 2 Cal. 4th 377, 383 (1992) (quotations and citations omitted). "A plaintiff alleging unfair business practices under [the UCL] must state with reasonable particularity the facts supporting the statutory elements of the violation." Khoury v. Maly's of California, Inc., 14 Cal. App. 4th 612, 619 (1993).

Plaintiffs allege in their FAC that "Defendants' acts . . . constitute unlawful, unfair, and/or fraudulent business practices, as defined in the California Business and Professions Code Section 17200." (FAC ¶ 120.) Further, Plaintiffs allege that "[a]s a result of Defendants' wrongful conduct, Plaintiffs have suffered various damages and injuries . . . ." (Id. ¶ 121.)

Plaintiffs' UCL claim against MERS is vague and conclusory, and does not differentiate between the conduct of MERS and the other defendants. The allegations, therefore, fail to state with reasonable particularity the facts supporting this claim. Therefore, this claim is dismissed.

D. Plaintiffs' Wrongful Foreclosure Claim

Lastly, MERS seeks dismissal of Plaintiffs' wrongful foreclosure claim, arguing "MERS assigned its interest under the Deed of trust . . . well before the foreclosure proceedings" and therefore "played no role in the foreclosure proceedings." (Mot. 13:6-10.) MERS also argues that under California Code of Civil Procedure section 725a and California Civil Code section 2924 possession of the note is not required to institute a non-judicial foreclosure. (Mot. 14:5-15:17.) Plaintiffs respond, arguing possession of the note is a prerequisite to initiating a foreclosure sale, that "MERS failed to comply with statutory requirements pertaining to the transfer of the Note and Deeds," and therefore "any foreclosure proceeding initiated by the . . . [d]efendants would be illegal unless [] MERS . . . or any other [d]efendant . . . can produce the Note . . . ." (Opp'n 22:4-12.)

Plaintiffs allege in their FAC that "Defendants . . . were not, and are not, in possession of the Note, are not beneficiaries, assignees or employees of the person or entity in possession of the Note, and are not otherwise entitled to payment." (FAC ¶ 140.) Plaintiffs also allege "Defendants are not 'person[s] entitled to enforce' the security interest on the Property, as that term is defined in Commercial Code § 3301." (Id.) Further, Plaintiffs allege "Defendants also failed to properly record and give notice of the Notice of Default . . . in violation of California Civil [C]ode § 2923.5." (Id. ¶ 142.) Lastly, Plaintiffs allege that since "Defendants" have received funds under the Troubled Asset Relief Program ("TARP"), they are subject to the United States' Treasury Department's guidelines for the Making Homes Affordable Program, and were required to "suspend the foreclosure action to allow the Plaintiffs to be considered for alternative foreclosure prevention options." (Id. ¶ 148.)

California Civil Code sections 2924 through 2941 govern non-judicial foreclosures initiated under a deed of trust. "California courts have consistently held that the Civil Code provisions 'cover every aspect' of the foreclosure process and are 'intended to be exhaustive.'" Morgera, 2010 WL 160348, *7 (citing I.E. Associates v. Safeco Title Ins. Co., 39 Cal. 3d. 281, 285 (1985) & Moeller v. Lien, 25 Cal. App. 4th 822, 834 (1994)); see also Castaneda v. Saxon Mortg. Serv., Inc., -- F. Supp. 2d ---, 2009 WL 4640673, at *7 (E.D. Cal. Dec. 3, 2009) (finding the California Commercial Code inapplicable to non-judicial foreclosure because the "comprehensive statutory framework . . . is intended to be exhaustive" (quotations and citations omitted)). Therefore, "Plaintiff[s'] reliance on Cal. Comm. Code § 3301 is misplaced" and Plaintiffs' allegations under that section are insufficient to state a wrongful foreclosure claim. Morgera, 2010 WL 160348, at *7 (finding California Commercial Code section 3301 inapplicable to non-judicial foreclosure proceedings).

Under California Civil Code section 2924(a)(1), a non-judicial foreclosure may be initiated by a "trustee, mortgagee, or beneficiary, or any of their authorized agents . . . ." Cal. Civ. Code § 2924(a)(1). However, contrary to Plaintiffs' assertions, the party initiating the foreclosure process need not be in possession of the note. See Quintero Family Trust v. Onewest Bank, F.S.B., No. 09-CV-1516-IEG (WVG), 2010 WL 392312, at *6 (S.D. Cal. Jan. 27, 2009) (stating that "under California law there is no requirement for production of the original note to initiate non-judicial foreclosure proceedings"); Morgera, 2010 WL 160348, at *7 (finding that "[t]here is no requirement that the party initiating non-judicial foreclosure proceedings be in possession of the original note"); Champlaie, 2009 WL 3429622, at *14 (concluding that "neither possession of the promissory note nor identification of the party in possession is a pre-requisite to non-judicial foreclosure); Castaneda, 2009 WL 4640673, at *7 (finding that "[u]nder California law, there is no requirement for the production of the original note to initiate a non-judicial foreclosure"). Accordingly, Plaintiffs' allegation that MERS was not in possession of the note does not state a wrongful foreclosure claim.

Plaintiffs also base their wrongful foreclosure claim on a violation of California Civil Code section 2923.5, alleging "Defendants failed to properly record and give proper notice of the Notice of Default." (FAC 142.) The FAC does not indicate whether MERS failed to properly give notice, and simply makes a general allegation against all defendants. "This general allegation gives [MERS] insufficient notice of whether it has committed any conduct that violates section 2923.5, and [MERS] should not be forced to guess whether it is individually liable for this conduct." Castenada, 2009 WL 4640673, at *8; see also Pok v. Am. Home Mortg. Serv., Inc., No. CIV 2:09-2385 WBS EFB, 2010 WL 476674, at *7 (E.D. Cal. Feb. 3, 2010) (finding that wrongful foreclosure premised on an allegation that defendants violated section 2923.5 was "just a reiteration of [P]laintiffs' argument that defendants 'must produce the note' to foreclose on their property.").

Plaintiffs' last allegation underlying their wrongful foreclosure claim alleges "Defendants" were required to suspend the foreclosure process due to Defendants' alleged receipt of TARP funds. However, even if MERS participate in the Making Homes Affordable Program ("MHAP"), "there is no express private right of action against TARP fund recipients." Pantoja v. Countrywide Home Loans, Inc., 640 F. Supp. 2d 1177, 1185 (N.D. Cal. 2009) (finding no express or implied right of action under TARP). Moreover, this allegation is again made generally against all defendants. Therefore, Plaintiffs' allegation that "Defendants" violated MHAP and TARP by refusing to suspend the foreclosure sale fails to state a wrongful foreclosure claim. Accordingly, Plaintiffs' wrongful foreclosure claim against MERS is dismissed.


For the stated reasons, MERS's motion to dismiss is GRANTED. Plaintiffs are granted leave to amend any claim that has been dismissed, provided that the amended complaint is filed within fourteen (14) days of the date on which this order is filed.

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