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Bernardo v. First New Century Mortgage Corp.


May 13, 2010


The opinion of the court was delivered by: Hon. Michael M. Anello United States District Judge


Before the Court is Defendant Litton Loan Servicing, L.P.'s ("Litton") motion to dismiss Plaintiffs Teresita Bernardo and Virgilio Bernardo's first amended complaint ("FAC"). [Doc. No. 16.] Litton filed its motion on January 11, 2010, Plaintiffs filed an opposition on February 8, and Litton filed a reply brief on February 10. [Doc. Nos. 19, 21.] The Court found Litton's motion suitable for decision on the papers and without oral argument pursuant to Civil Local Rule 7.1(d)(1) [Doc. No. 20]. For the reasons discussed below, the Court GRANTS Litton's motion to dismiss.


This action arises from foreclosure-related events with respect to Plaintiffs' home.*fn1 On or about January 9, 2007, Plaintiffs purchased a house located at 10328 Limetree Lane, Spring Valley, California 91977 (the "Property"). [FAC, Doc. No. 7, ¶6.] Plaintiffs obtained financing to purchase the Property from Defendant New Century Mortgage Corporation ("New Century"). [Id. at ¶6.] New Century provided Plaintiffs a first loan in the amount of $419,747 ("First Loan"), and a second loan in the amount of $104,400 ("Second Loan"), each secured by a trust deed. [Id. at ¶¶7-8.] Defendant Litton is the current serving company for the First Loan, and Defendant Saxon Mortgage Services, Inc. ("Saxon") services the Second Loan. [Id.] Defendants, however, should never have approved Plaintiffs' loan application. [Id. at ¶¶9-10.]

In their initial loan application, Plaintiffs accurately stated their yearly income, which would have been approximately $96,000 based on Plaintiffs' 2006 tax returns that reported their monthly income as $7,993. [Id. at ¶9.] Defendants did not request proof of Plaintiffs' income, and instead, intentionally increased Plaintiffs' stated monthly income on the loan application to $16,000 per month. [Id. at ¶¶9, 11.] Because Defendants exaggerated Plaintiffs' income, Plaintiffs obtained loans for the purchase of the Property that they would not have otherwise been qualified. [Id. at ¶¶9-10.]

In addition, Plaintiffs did not receive two completed Notices of Right to Cancel within three days after consummation of the loan, as required by the federal Truth in Lending Act ("TILA"). [Id. at ¶12.] The Notices Plaintiffs received were incomplete, as they "failed to include a transaction date or the expiration of the rescission period." [Id.] Defendants also violated TILA by providing Plaintiffs an incomplete and unsigned Truth-In-Lending Statement. [Id. at ¶13.] Similarly, the Good Faith Estimate Defendants provided Plaintiffs was incomplete and unsigned, in violation of the Real Estate Settlement Procedures Act ("RESPA"). [Id. at ¶14.] The loan documents also failed to include other initial and final disclosures required by TILA and RESPA. [Id. at ¶15.]

As a result of Defendants' wrongful conduct, Plaintiffs experienced difficulty paying the mortgages on the Property. [Id. at ¶16.] Beginning in April 2009, Plaintiffs repeatedly asked Litton to provide them with copies of their loan documents. [Id. at ¶17.] Litton ignored Plaintiffs' requests. [Id.] On May 4, 2009, Plaintiffs received a Notice of Default on the First Loan. [Id. at ¶18.] Defendants did not work with Plaintiffs to modify the loan in the month prior to or after Plaintiffs received the Notice of Default. [Id. at ¶19.] Plaintiffs filed this action against several named defendants on August 21, 2009 [Doc. No. 1], and later filed the FAC on November 30, 2009, alleging eleven causes of action, including: (1) Intentional Misrepresentation; (2) Constructive Fraud; (3) Breach of Covenant of Good Faith and Fair Dealing; (4) Action to Quiet Title; (5) Accounting; (6) Violations of TILA; (7) Violations of RESPA; (8) Violation of California Civil Code § 1632(b); (9) Violation of California Business and Professions Code § 17200 et seq.; (10) Violation of California Civil Code § 2923.6; and (11) Violation of California Civil Code § 2923.5. [Doc. No. 7.]


A complaint survives a motion to dismiss if it contains "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The court reviews the contents of the complaint, accepting all factual allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). Notwithstanding this deference, the reviewing court need not accept "legal conclusions" as true. Ashcroft v. Iqbal, -- U.S. -- , 129 S.Ct. 1937, 1949 (2009). Moreover, it is improper for a court to assume "the [plaintiff] can prove facts that [he or she] has not alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983). Accordingly, a reviewing court may begin "by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." Ashcroft, supra, 129 S.Ct. at 1950.

"When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id. 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." Id. at 1949. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. "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.'" Id. (citing Twombly, 550 U.S. at 557).


I. Federal Claims

In their sixth and seventh causes of action, Plaintiffs allege Defendants violated federal statutes, TILA (15 U.S.C. § 1601-1667f) and RESPA (12 U.S.C. § 2601 et seq.), respectively. The Court considers the propriety of these two claims first, as its jurisdiction is premised on the alleged TILA and RESPA violations; Plaintiffs' remaining nine causes of action are based on state law.

Plaintiffs assert Defendants violated TILA by intentionally misstating Plaintiffs' income to make them a loan they could not afford, and failing to provide Plaintiffs complete and executed copies of the Notice of Right to Cancel and the Truth-In-Lending Statement within three days of consummating the loan. [Doc. No. 7, ¶¶56-57.] Similarly, Plaintiffs assert Defendants' course of conduct violated RESPA, when Defendants failed to provide Plaintiffs a Good Faith Estimate within three days of completing the loan process. [Id. at ¶¶63-64.]*fn2

In its motion to dismiss, Litton makes numerous arguments asserting several deficiencies in Plaintiffs' sixth and seventh causes of action. For example, with respect to Plaintiffs' TILA claim, Litton argues it cannot be held liable for the alleged TILA violations in its capacity as the servicing company for the First Loan. [Doc. No. 16, p.8 citing 15 U.S.C. § 1641(f); Pelayo v. Home Capital Funding, 2009 WL 1459419 *4 (S.D. Cal.).] Litton also asserts Plaintiffs' TILA cause of action is barred by the one-year statute of limitation under 15 U.S.C. § 1640, because Plaintiffs admit they entered the loan in January 2007, but failed to file their complaint until August 2009. [Doc. No. 16, p.9.] Litton similarly argues Plaintiffs' RESPA claim is barred by the one-year statute of limitation under 12 U.S.C. § 2614, and that Plaintiffs did, in fact, receive and execute a Good Faith Estimate.*fn3

Plaintiffs concede Litton is not a proper defendant as to their TILA and RESPA causes of action. Specifically, Plaintiffs "stipulate that the [sixth] and [seventh] claims of relief for violation of RESPA and TILA are only asserted against Defendant NEW [Century] for failure to provide (or accurately provide) all of the documents and disclosures under TILA/RESPA." [Doc. No. 19, p.11.] Accordingly, the Court need not reach the merits of Litton's arguments regarding Plaintiffs' deficient TILA and RESPA allegations, and hereby DISMISSES Plaintiffs' sixth and seventh causes of action against Litton, with prejudice.

II. State Law Claims

Because the Court grants Litton's motion to dismiss as to both of Plaintiffs' federal claims upon which the Court's jurisdiction is based, the Court declines to retain jurisdiction over Plaintiffs' remaining state law claims. When the Court's jurisdiction is initially premised on a federal question, it may decline to exercise supplemental jurisdiction over state law claims if no independent basis for subject matter jurisdiction exists after the dismissal of the federal claims. 28 U.S.C. § 1367(c)(3); Osborn v. Haley, 549 U.S. 225, 245 (2007) (citing Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350--51 (1988)). The decision whether to retain or dismiss state claims after dismissal of all federal claims is fully discretionary. Schneider v. TRW, Inc., 938 F.2d 986, 993--94 (9th Cir. 1991). In the usual case where federal claims are dismissed before trial, the balance of factors will point toward declining to exercise jurisdiction over the remaining state law claims. Schultz v. Sundberg, 759 F.2d 714, 718 (9th Cir. 1995); Gini v. Las Vegas Metro. Police Dep't, 40 F.3d 1041, 1046 (9th Cir. 1994). Accordingly, the Court declines to exercise its discretion to retain the remaining state law claims, and DISMISSES those claims without prejudice.


For the reasons stated herein, the Court GRANTS Litton's motion to dismiss. Plaintiffs' sixth and seventh causes of action for TILA and RESPA violations are dismissed with prejudice, and Plaintiffs' remaining nine causes of action are dismissed without prejudice.


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