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Walters v. Fidelity Mortgage of California

April 14, 2010


The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge


This matter is before the court on the motion of defendants Mortgage Electronic Registration Systems, Inc. ("MERS") and Ocwen Loan Servicing, LLC ("Ocwen") (collectively "defendants") to dismiss plaintiff Deana Walters's ("plaintiff") first amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).

Plaintiff opposes the motion. For the reasons set forth below,*fn1 defendants' motion to dismiss is GRANTED in part and DENIED in part.


Plaintiff's claims are all based upon activities relating to a residential mortgage loan transaction. (Pl.'s First Am. Compl. ("FAC"), filed Oct. 28, 2009, ¶ 10.) On October 22, 2004, plaintiff obtained a loan in the amount of $159,000 from Fidelity Mortgage of California, Inc. ("Fidelity") on property located at 3602 Portage Circle South, Stockton, California ("the property"). (Id. ¶¶ 10, 11.) The loan was evidenced by a written promissory note and secured by a deed of trust, which named Cal-Western as trustee and MERS as beneficiary and as nominee for Fidelity. (Id. ¶ 11.) Around November 3, 2004, the servicing rights to plaintiff's loan were transferred to Ocwen.*fn2 (Id. ¶ 12.)

Plaintiff alleges that upon acquiring the loan, Ocwen began to engage in a pattern of unlawful and fraudulent conduct. (Id. ¶ 14.) Plaintiff claims, inter alia, that Ocwen (1) failed to credit and misapplied timely payments, (2) failed to provide timely or clear payment information, (3) prematurely referred plaintiff's loan to collections, (4) increased monthly payment amounts and added costs, fees, and interest charges in violation of the terms of the original mortgage note, and (5) inaccurately claimed plaintiff was in default and threatened foreclosure when plaintiff was not in default. (Id.) Plaintiff further alleges that throughout the life of the loan, she repeatedly contacted Ocwen to complain about the errors in her loan accounting and attempted to work with Ocwen to correct the errors. (Id. ¶ 18.) Ocwen's response to plaintiff's attempts, however, was to "threaten foreclosure pending investigation into the details of the accounting errors and mistakes." (Id.)

In March 2007, Ocwen demanded that plaintiff enter into a "forbearance agreement" with Ocwen in order to avoid foreclosure, pending Ocwen's investigation into the mistakes plaintiff reported. (Id. ¶ 19.) Plaintiff agreed to the arrangement and made several payments. (Id.) However, beginning in December 2008, Ocwen claimed that the forbearance agreement had expired, and Ocwen refused to accept payments until a loan modification was processed. (Id. ¶ 20.) When plaintiff explained that she did not want a loan modification, Ocwen insisted that no payments would be applied to plaintiff's loan balance unless she agreed to a loan modification. (Id.) As a result, plaintiff provided Ocwen with information relating to a loan modification. (Id.)

Plaintiff repeatedly called Ocwen to try to determine the status of her loan modification and to process her December 2008 payment, but Ocwen refused to process any payments or provide plaintiff with information. (Id. ¶ 21.) In January 2009, plaintiff again contacted Ocwen to obtain a payoff amount in order to cure Ocwen's claim that plaintiff had defaulted on her loan. (Id. ¶ 22.) Plaintiff spoke to an Ocwen representative who agreed to process a request for a "reinstatement quote" in the amount of $8,258.60. (Id.)

When plaintiff contacted Ocwen to obtain the status of her modification agreement on January 6, 2009, Ocwen told plaintiff that her property was scheduled to be sold at foreclosure on January 15, 2009. (Id. ¶ 23.) Between January 6 and January 14, 2009, plaintiff contacted Ocwen several times to make a payment, but Ocwen declined her attempts "pending completion of the loan modification." (Id. ¶ 25.) On January 14, 2009, plaintiff spoke with an Ocwen representative named Evelyn, who informed plaintiff that her loan would be cured and the foreclosure sale would not proceed if plaintiff agreed to transmit the amount on the "reinstatement quote" to Ocwen. (Id. ¶ 26.) Plaintiff immediately ordered the wire transfer of $8,258.60 to J.P. Morgan, as provided for by the written agreement, and confirmed placement of the wire transfer with Ocwen by fax on the same day. (Id. ¶ 27.)

On January 16, 2009, Ocwen sent plaintiff a loan payoff quote that included a breakdown of the payoff funds with an expiration date of January 26, 2009. (Id. ¶ 29.) Plaintiff understood this payoff quote to be confirmation that a foreclosure sale did not take place. (Id.) However, Cal-Western had conducted a trustee's sale on January 15, and title to the property was transferred to defendant James York ("York") on January 17, 2009.

Around January 30, 2009, plaintiff received a three day notice to quit from York.*fn3 Thereafter, around January 31, Evelyn informed plaintiff that Ocwen had received plaintiff's wire transfer but that the house was sold in foreclosure because the money had not been received "in time." (Id. ¶ 34.) Evelyn told plaintiff that she (Evelyn) had contacted York and advised him that the sale was a mistake, but that York refused Ocwen's request to rescind the sale. (Id. ¶ 34.) When plaintiff contacted York directly and asked him to rescind the sale, York claimed he told Ocwen that he would agree to rescind upon receipt of proof from Ocwen that plaintiff made the January 14 wire payment. (Id. ¶ 35.) York claimed, however, that Ocwen never sent him proof.*fn4 (Id.)

On May 29, 2009, plaintiff filed this action against defendants MERS, Ocwen, Fidelity, Cal-Western Reconveyance Corp. ("Cal-Western"), and York, in the California Superior Court, San Joaquin County. (Docket No. 1.) On October 28, 2009, plaintiff filed her first amended complaint, adding defendants J.P. Morgan Chase & Co. ("J.P. Morgan") and J.P. Morgan Chase Bank, N.A. ("Chase Bank"), and alleging causes of action for (1) cancellation of trustees deed, (2) quiet title, (3) injunctive relief, (4) breach of contract, (5) civil conspiracy, (6) fraud, (7) violation of California's Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), (8) breach of fiduciary duty, (9) negligence, (10) violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), (11) unjust enrichment, and (12) fraudulent business practices. (Id.) Defendants MERS and Ocwen removed the FAC to this court on November 27, 2009, on the basis of federal question jurisdiction, 28 U.S.C. § 1331.*fn5



Under Federal Rule of Civil Procedure 8(a), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." See Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Under notice pleading in federal court, the complaint must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). "This simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002).

On a motion to dismiss, the factual allegations of the complaint must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322 (1972). The court is bound to give plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). A plaintiff need not allege "'specific facts' beyond those necessary to state his claim and the grounds showing entitlement to relief." Twombly, 550 U.S. at 570. "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.

Nevertheless, the court "need not assume the truth of legal conclusions cast in the form of factual allegations." United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While Rule 8(a) does not require detailed factual allegations, "it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 129 S.Ct. at 1949. A pleading is insufficient if it offers mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Id. at 1950 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."); Twombly, 550 U.S. at 555. Moreover, it is inappropriate to assume that the plaintiff "can prove facts which it has not alleged or that the defendants have violated the... laws in ways that have not been alleged." Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).

Ultimately, the court may not dismiss a complaint in which the plaintiff has alleged "enough facts to state a claim to relief that is plausible on its face." Iqbal, 129 S.Ct. at 1949 (citing Bell Atl. Corp., 550 U.S. at 570). Only where a plaintiff has failed to "nudge [his or her] claims across the line from conceivable to plausible," is the complaint properly dismissed. Id. at 1952. While the plausibility requirement is not akin to a probability requirement, it demands more than "a sheer possibility that a defendant has acted unlawfully." Id. at 1949. This plausibility inquiry is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950.


A. Defendants' Exhibits

In ruling upon a motion to dismiss, the court may consider matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. See Mir, 844 F.2d at 649; Isuzu Motors Ltd., 12 F. Supp. 2d at 1042. Rule 201 permits a court to take judicial notice of an adjudicative fact "not subject to reasonable dispute" because the fact is either "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b). The court can take judicial notice of matters of public record, such as pleadings in another action and records and reports of administrative bodies. See Emrich v. Touche Ross & Co., 846 F.2d 1190, 1198 (9th Cir. 1988).

"Even if a document is not attached to a complaint, it may be incorporated by reference into a complaint if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim." United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). "The defendant may offer such a document, and the district court may treat such a document as part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6)." Id. The policy concern underlying the rule is to prevent plaintiffs "from surviving a Rule 12(b)(6) motion by deliberately omitting references to documents upon which their claims are based." Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998).

Several of plaintiff's claims for relief are dependent upon, and plaintiff's complaint repeatedly refers to, information contained in the deed of trust (RFJN, Ex. 1) and the assignment of the deed of trust (RFJN, Ex. 5). (See FAC ¶¶ 11-13.) Because the deed of trust and the assignment of the deed of trust form the basis of several of plaintiff's causes of action, the court takes judicial notice of both documents.*fn6 Accordingly, the court will treat exhibits 1 and 5 as part of the complaint and assume that their contents are true for purposes of the motions to dismiss. Ritchie, 342 F.3d at 908.

B. Cancellation of Trustee's Deed

Plaintiff's first cause of action seeks to cancel the trustee's deed upon sale on the grounds that plaintiff "satisfied the written payoff demand of Ocwen in time to avoid the foreclosure sale." (FAC ¶ 39.) Defendants argue that plaintiff (1) failed to tender the amount of indebtedness to defendants, and (2) failed to allege facts entitling her to cancel the trustee's deed.

Under California Civil Code § 3412, "a written instrument in respect to which there is reasonable apprehension that if left outstanding it may cause serious injury to a person against whom it is void or voidable, may, upon his application, be so adjudged, and ordered to be delivered up or cancelled." Cal. Civ. Code § 3412. "To 'cancel' a contract means to abrogate so much of it as remains unperformed. It differs from 'rescission,' which means to restore the parties to their former position. The one refers to the state of things at the time of the cancellation; the other to the state of things existing when the contract was made." Phleger v. Countrywide Home Loans, Inc., No. C 07-01686, 2009 WL 537189, at *15 (N.D. Cal. Mar. 3, 2009) (quoting Young v. Flickinger, 75 Cal. App. 171, 174 (1925)). "The court's cancellation powers arise in equity, and are much broader than those which apply to rescission." Id. (quoting Boyd v. Lancaster, 56 Cal. App. 2d 103, 110 (1942)).

When a trustor and beneficiary enter into an agreement to cure a trustor's home loan default, and the trustor performs in accordance with the agreement, the beneficiary may not exercise the power of sale. Bank of America v. La Jolla Group II, 129 Cal. App. 4th 706, 712 (2005). In Bank of America v. La Jolla Group II, the California Court of Appeal considered whether it was proper (1) to cancel a non-judicial foreclosure sale based on the homeowner's agreement with the mortgagor to cure a default on the loan secured by a deed of trust, and (2) to reinstate the loan prior to the sale. Id. After the homeowner missed several payments on the loan, the homeowner and lender entered into an agreement to cure the homeowner's default and reinstate the loan. Id. at 709. Although the homeowner procured the payment in accordance with the agreement, the lender did not inform the trustee of the agreement, and the homeowner's property was sold to a third party. Id. In finding the foreclosure sale invalid, the court stated that "no contractual basis remain[ed] for exercising the power ...

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