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Gumbs v. Litton Loan Servicing

May 13, 2010


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


Defendants Litton Loan Servicing ("Litton Loan") and U.S. Bank National Association as Trustee for the C-BASS Mortgage Loan Asset-Backed Certificates, Series 2006-CB8 ("U.S. Bank") filed a motion to dismiss Plaintiffs' Second Amended Complaint ("SAC"), under Federal Rule of Civil Procedure ("Rule") 12(b)(6) for failure to state a claim upon which relief can be granted. (Docket No. 35.) Defendant Argent Mortgage Company, LLC ("Argent") also filed a Rule 12(b)(6) dismissal motion. (Docket No. 38.) Plaintiffs filed late oppositions to both motions.


Plaintiffs factual allegations and claims in the SAC are the following. In April 2006, Plaintiffs met with American Discount Mortgage, Inc. ("American Discount") loan officer Letriffa A. Crawley ("Crawley") and real estate broker Tom Zummo ("Zummo") to discuss refinancing their residential property located at 1557 Sophie Lane, Escalon in San Joaquin County, California (the "Property"). (SAC ¶ 27.) Crawley advised Plaintiffs she could refinance their home with the "best deal" and the "best interest rates" available on the market. (Id. ¶¶ 27-28.) Crawley assured Plaintiffs their income was sufficient to support the loan, and that if the loan ever became unaffordable, she would refinance the loan. (Id. ¶ 29.) Crawley overstated Plaintiffs' income on the loan application without Plaintiffs' knowledge or permission. (Id. ¶ 30.) Plaintiffs allege they qualified as "prime" borrowers; however, Crawley classified Plaintiffs as "sub-prime" borrowers and failed to "disclose [to Plaintiffs] other loan program options." (Id. ¶¶ 32-33) Crawley sold Plaintiffs a loan for $494,000 with an adjustable interest rate "from 7.4% to 13.4% and [with] a prepayment penalty and a balloon payment." (SAC ¶ 35.)

Plaintiffs completed the loan transaction on or about May 26, 2006. (Id. ¶ 40.) The terms of the loan were memorialized in a promissory note, which was secured by a Deed of Trust. (Id.) The Deed of Trust identified Town and Country Title Service, Inc. as trustee and Argent as Lender. (Id.)

Plaintiffs were not given a copy of the loan documents prior to closing as required, and at the time of closing, Plaintiffs were rushed to signed the documents. (Id. ¶ 38.) The loan documents were never explained to Plaintiffs, Plaintiffs were never given an opportunity to review them, and Plaintiffs never received the required copies of the notice of cancellation. (SAC ¶ 38.)

Following the closing of Plaintiffs' loan, Litton Loan began demanding mortgage payments. (Id. ¶ 41) Litton Loan never notified Plaintiffs it had acquired servicing rights on the loan. (Id.) Plaintiffs remitted payments to Litton Loan ranging from "$3,370.39 to $3,701.19." (Id. ¶ 42)

"On or about May 14, 2007, a handwritten 'Corporation Assignment of Deed of Trust' was recorded with the San Joaquin County Recorder . . . transferring the beneficial interest in Plaintiffs' Deed of Trust to [U.S. Bank], signed by Mali Wright - Agent [sic]." (Id. ¶ 43.) This assignment was "back dated" to May 26, 2006. (Id.) On June 25, 2008, Laura Bursey executed an Assignment of Deed of Trust on behalf of Argent, assigning Argent's interest to U.S. Bank. (Id. ¶ 45.) This Assignment was recorded with the San Joaquin County recorder on August 6, 2008. (SAC ¶ 45.)

On June 26, 2008, Quality Loan Service Corporation ("Quality") recorded a Notice of Default with the San Joaquin County Recorder. (Id. ¶ 44) On August 13, 2008, Quality recorded a rescission of the June 26, 2008 Notice of Default. On January 7, 2009, Quality recorded a second Notice of Default and Election to Sell Under Deed of Trust. (Id. ¶ 47.) On "April 9, 2009 and again on August 6, 2009, [Quality] recorded two different Notices of Trustee's Sale." (Id. ¶ 48.) Plaintiffs allege Quality has never explained "when, how or under what authority [it] became a substitute Trustee or an agent for the [b]eneficiary" entitled to record a Notice of Default or Notice of Trustee's Sale. (Id. ¶¶ 44, 47-48.)

Plaintiffs sent a Qualified Written Request ("QWR") to Litton Loan under the Real Estate Settlement Procedures Act ("RESPA") on April 23, 2009, in which Plaintiffs requested information regarding the loan and demanded rescission of the loan under the Truth in Lending Act ("TILA"). (Id. ¶ 49) Litton Loan responded on May 29, 2009, identifying Argent as the "holder and owner of Plaintiffs' Note." (Id. ¶ 50)

Plaintiffs allege the following eight claims against Argent:

(1) violation of TILA, 15 U.S.C. §§ 1601, et seq.; (2) violation of RESPA, 12 U.S.C. §§ 2601, et seq.; (3) negligence; (4) breach of fiduciary duty; (5) fraud; (6) violation of California Business and Professions Code § 17200; (7) breach of contract; and (8) breach of the implied covenant of good faith and fair dealing. Plaintiffs allege the following four claims against U.S. Bank: (1) negligence;

(2) fraud; (3) violation of California Business and Professions Code § 17200; and (4) wrongful foreclosure. Plaintiffs allege the following six claims against Litton Loan: (1) violation of the California Rosenthal Act, California Civil Code §§ 1788, et seq.; (2) negligence;

(3) violation of RESPA, 12 U.S.C. §§ 2601, et seq.; (4) fraud; (5) violation of California Business and Professions Code § 17200; and (6) wrongful foreclosure.

II. Legal Standard

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.

III. Analysis

A. Plaintiffs' TILA Claim

1. Plaintiffs' Claim for Damages Under TILA

Argent seeks dismissal of the civil damages portion of Plaintiffs' TILA claim, arguing, inter alia, it is time barred. (Argent Mot. to Dismiss ("Argent Mot.") 8:1-5.) Argent further argues "no basis for equitable tolling exists." (Id. 9:10-16.) Plaintiffs rejoin they have plead sufficient facts to show that the statute of limitations period should be equitably tolled. (Plts.' Opp'n to Argent Mot. ("Opp'n to Argent Mot.") 10:19-12:1.)

An action under TILA for actual or statutory damages must be brought "within one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e). "[A]s a general rule[,] [this] limitations period starts [to run] at the consummation of the transaction." King v. California, 784 F.2d 910, 915 (9th Cir. 1986). "Consummation" is defined under TILA as "the time that a consumer becomes contractually obligated on a credit transaction." Grimes v. New Century Mortg. Corp., 340 F.3d 1007, 1009 (9th Cir. 2003) (quoting 12 C.F.R. § 226.2(a)(13)). However, the doctrine of equitable tolling may "suspend the limitations period" "in certain circumstances," such as where the allegations in the complaint permit a reasonable inference that the borrower did not have a reasonable opportunity to discover the alleged fraud or nondisclosures that form the basis of the plaintiff's TILA claim. Id. at 914-15; Al-Kidd, 580 F.3d at 956.

Plaintiffs allege the TILA violations occurred on May 26, 2006, the date Plaintiffs entered into the loan agreement with Defendants and consummated the loan transaction. (SAC ΒΆ 40.) Since Plaintiffs did not bring their TILA damages claim until April 28, 2009, which is well over one year after the May 26, 2006 date on which the loan transaction was consummated, Plaintiffs brought this claim after the one-year statute of limitations period. Plaintiffs argue in their Opposition to Argent's motion that they are entitled to equitable tolling. However, Plaintiffs fail to cite to any allegations in their SAC which would permit drawing a reasonable inference that they did not have an opportunity to discover the alleged fraud ...

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