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Santos v. U.S. Bank N.A.

May 28, 2010


The opinion of the court was delivered by: Anthony W. Ishii Chief United States District Judge


I. History*fn1

Plaintiffs Felipe Santos, Jr. and Gemma Santos purchased a home at 10111 Fitzgerald Drive, Bakersfield, CA 93311 ("Property"). They refinanced their mortgage on the property on February 7, 2007. Defendant Greenpoint Mortgage Funding, Inc. ("Greenpoint") was the originating lender. Defendant U.S. Bank, N.A. ("US Bank") was the assignee of the mortgage. Defendant Aurora Loan Services, LLC ("Aurora") was the loan servicer. Plaintiffs owed $436,206.71 on the prior mortgage, replacing it with a new mortgage for $492,000. The mortgage was a variable rate loan with an initial rate of 7.375% and a maximum rate of 12.375% and minimum rate of 2.750%. As part of the refinance, Plaintiffs paid a number of miscellaneous fees Plaintiffs allege are duplicative and unreasonable. Plaintiffs also allege a number of disclosures were not provided. By April 10, 2009, Plaintiffs fell behind on their mortgage payments.

Plaintiffs filed suit on May 21, 2009 in federal district court. Defendants Greenpoint and Aurora filed motions to dismiss. Plaintiffs filed a First Amended Complaint ("FAC") on October 12, 2009. In thhe FAC, Plaintiffs made four claims against all Defendants: (1) rescission under the Truth In Lending Act ("TILA"); (2) monetary damages under TILA; (3) statutory damages under the Real Estate Settlement Procedures Act; and (4) monetary damages under California's Unfair Competition Law ("UCL"). Defendant Greenpoint and Aurora again filed motions to dismiss. No timely opposition was received and the matters were taken under submission. The parties entered into discussions and Plaintiffs voluntarily dismissed all claims against Defendants Aurora and US Bank on February 22, 2010. Plaintiffs maintain their claims against Defendant Greenpoint and filed a late opposition to Greenpoint's motion to dismiss on February 21, 2010. Though Plaintiffs' opposition was filed late, the court will consider Plaintiffs' arguments as they help to advance the course of litigation.

II. Legal Standards

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." 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. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "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)....a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007), citations omitted. "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss. Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, 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." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009), citations omitted. The court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The court must also assume that "general allegations embrace those specific facts that are necessary to support the claim." Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 889 (1990), citing Conley v. Gibson, 355 U.S. 41, 47 (1957), overruled on other grounds at 127 S.Ct. 1955, 1969. Thus, the determinative question is whether there is any set of "facts that could be proved consistent with the allegations of the complaint" that would entitle plaintiff to some relief. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). At the other bound, 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).

In deciding whether to dismiss a claim under Rule 12(b)(6), the Court is generally limited to reviewing only the complaint. "There are, however, two exceptions....First, a court may consider material which is properly submitted as part of the complaint on a motion to dismiss...If the documents are not physically attached to the complaint, they may be considered if the documents' authenticity is not contested and the plaintiff's complaint necessarily relies on them. Second, under Fed. R. Evid. 201, a court may take judicial notice of matters of public record." Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001), citations omitted. The Ninth Circuit later gave a separate definition of "the 'incorporation by reference' doctrine, which permits us to take into account documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the plaintiff's pleading." Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005), citations omitted. "[A] court may not look beyond the complaint to a plaintiff's moving papers, such as a memorandum in opposition to a defendant's motion to dismiss. Facts raised for the first time in opposition papers should be considered by the court in determining whether to grant leave to amend or to dismiss the complaint with or without prejudice." Broam v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir. 2003), citations omitted.

If a Rule 12(b)(6) motion to dismiss is granted, claims may be dismissed with or without prejudice, and with or without leave to amend. "[A] 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), quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995). In other words, leave to amend need not be granted when amendment would be futile. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).

III. Discussion

A. Truth In Lending Act

In the first two counts, Plaintiffs seeks rescission and monetary damages under TILA and Regulation Z (regulation issued by the Federal Reserve to implement TILA) based on allegations that they did not receive required disclosures. TILA "requires creditors to provide borrowers with clear and accurate disclosures of terms dealing with things like finance charges, annual percentage rates of interest, and the borrower's rights. Failure to satisfy the Act subjects a lender to criminal penalties for noncompliance, as well as to statutory and actual damages traceable to a lender's failure to make the requisite disclosures, see §1640....the Act also authorizes a borrower whose loan is secured with his 'principal dwelling,' and who has been denied the requisite disclosures, to rescind the loan transaction entirely." Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998), citations omitted.

1. Rescission

Greenpoint asserts that Plaintiffs can not rescind the mortgage because they have not alleged the ability and willingness to return the $492,000 principal. Plaintiffs assert that they "may keep any money or property, and has no obligation to tender, until the Defendants have cancelled the mortgage lien, or security interest in the property, and return any money or property given to the Defendants or to anyone else in connection with this transaction....Plaintiffs cannot tender an exact and definite amount since Defendant unfairly failed to provide them 'with an itemization of the loan disbursements, the loan charges, the current principal balance, and all payments that we may determine the exact amount needed for tender' despite Plaintiff's unequivocal and clear demand. Because of the detrimental act of Defendant [] AURORA, Plaintiffs are deemed to have substantially complied with the offer to tender." Doc. 20, FAC, at 10:5-8 and 10:28-11:4. Courts have discretion in determining the sequence of events concerning rescission; "a borrower could get out from under a secured loan simply by claiming TILA violations, whether or not the lender had actually committed any. Rather, under the statute and the regulation, the security interest 'becomes void' only when the consumer 'rescinds' the transaction. In a contested case, this happens when the right to rescind is determined in the borrower's favor." Yamamoto v. Bank of N.Y., 329 F.3d 1167, 1172 (9th Cir. 2003), emphasis in original. Plaintiffs argue that "Yamamoto did not hold that a Plaintiff must plead the ability to tender in order to state a claim for rescission. Rather, it merely established that the court has discretion to require the Plaintiff to produce evidence of the ability to tender prior to issuing a final ruling on the rescission claim." Doc. 36, Opposition, at 5:8-11. Rescission is an empty remedy without Plaintiffs' ability to pay back the principal of the loan (less interest, finance charges, etc.). Requiring Plaintiffs to allege that they can tender at this point in the litigation is consistent with Yamamoto. See Gonzalez v. First Franklin Loan Services, 2010 WL 144862, *5 (E.D. Cal. 2010); Avina v. BNC Mortg., 2009 WL 5215751, *2 (N.D. Cal. 2009); Farmer v. Countrywide Financial Corp., 2009 WL 1530973, *5 (C.D. Cal. 2009); Pagtalunan v. Reunion Mortgage Inc., 2009 WL 961995, *3 (N.D. Cal. 2009); Garza v. American Home Mortg., 2009 WL 188604, *5 (E.D. Cal. 2009).

Greenpoint also argues that the Property is not Plaintiff's primary dwelling. Under TILA, rescission is only available as a remedy in property transactions when the property is "used as the principal dwelling of the person to whom credit is extended." 15 U.S.C. §1635(a). "The term 'dwelling' means a residential structure or mobile home which contains one to four family housing units, or individual units of condominiums or cooperatives." 15 U.S.C. §1602(v). "[T]he Board of Governors of the Federal Reserve System has issued Regulation Z to implement the TILA, see 12 C.F.R. § 226.1 (1991), et seq., and id. §226.23(a) reiterates the 'principal dwelling' requirement of section 1635(a). An official staff interpretation of this provision by the Board's Division of Consumer and Community Affairs, see 12 C.F.R. Pt. 226, App. C (1991), states: 'A consumer can ...

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