The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court
DENYING IN PART MOTION TO DISMISS [Doc. Nos. 66, 78]
Currently before the Court is a Motion to Dismiss brought by Defendants OneWest Bank, F.S.B. ("OneWest") and IndyMac Mortgage Services ("IndyMac"), and joined in by Defendant Quality Loan Service Corporation ("Quality"). Having considered the parties' arguments, and for the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART the motion to dismiss.
George Hannibal Quintero and Celia G. Quintero ("Quinteros") are the owners of certain real property commonly known as 4180 EAST CANTERBURY DRIVE, SAN DIEGO, CA 92116 ("Property").They allege Defendants Bill Laney and his business entity, Home Asset Mortgage, with the aid of the other Defendants, targeted them for a series of loans and refinances over the years and as a result have stripped their house of all equity.*fn1 According to Quinteros, Laney and Home Asset befriended them and persuaded them to finance up to 100% of the equity in the Property so that the money could be invested in other real property in hopes of gaining rental income. The central focus of the litigation is the last refinance, which occurred in 2006.
On October 31, 2006, Quinteros obtained a loan from Defendant Clarion Mortgage Capital, Inc. ("Clarion") in the amount of $821,000.00. The loan was recorded on November 20, 2006. The loan was immediately assigned by Clarion to Mortgage Electronic Registration Systems ("MERS"). On December 18, 2008, the loan was assigned from MERS to IndyMac Federal Bank, F.S.B. This assignment was notarized on March 10, 2009, and recorded on March 20, 2009. On December 19, 2008, IndyMac executed a Substitution of Trustee, substituting Quality as a trustee under the Deed of Trust. The Substitution of Trustee was notarized on January 9, 2009, and was recorded on February 25, 2009. On March 15, 2009, OneWest purchased IndyMac's assets from the Federal Deposit Insurance Corporation ("FDIC"), which has previously taken over those assets. Finally, on November 2, 2009, the loan was assigned to HSBC Bank USA, N.A.
Plaintiffs defaulted on their loan some time in 2008. On January 13, 2009, Quality--acting as an agent for the beneficiary--recorded and served a Notice of Default on the Property. On April 15, 2009, Quality recorded a Notice of Trustee's Sale of the Property in the amount of $902,529.50, setting May 4, 2009 as the date of sale. Plaintiffs subsequently filed a Chapter 13 bankruptcy on May 2, 2009, thereby staying the foreclosure sale. In October 2009, the bankruptcy court dismissed Plaintiffs' Chapter 13 case.
II. Procedural Background
The Quinteros commenced the present action on July 17, 2009, and filed a First Amended Complaint ("FAC") on August 20, 2009, alleging fifteen causes of action against Defendants. On November 12, 2009, Plaintiffs filed a Motion for Temporary Restraining Order ("TRO") and Preliminary Injunction, asking the Court to enjoin Defendants from conducting a trustee's sale of the Property, at least until the matter can be considered on the merits. The Court granted Plaintiffs' motion on the same day, entering a TRO and setting November 25, 2009 as the hearing date on the preliminary injunction. [Doc. No. 33]. On November 25, 2009, after holding a hearing on the preliminary injunction, the Court granted Plaintiffs' request for a preliminary injunction as to all Defendants, except Defendant Clarion. [Doc. No. 43]. On January 27, 2010, the Court granted in part and denied in part Defendants' motions to dismiss Plaintiffs' FAC. [Doc. No. 62]. Plaintiffs filed a Second Amended Complaint ("SAC") on February 26, 2010, alleging twelve causes of action. Since then, Defendants Clarion and Gregory Harrison filed answers to the SAC. [Doc. Nos. 69, 85].
A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the pleadings. 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 may dismiss a complaint as a matter of law for: (1) "lack of cognizable legal theory," or (2) "insufficient facts under a cognizable legal claim." SmileCare Dental Group v. Delta Dental Plan of Cal., 88 F.3d 780, 783 (9th Cir. 1996) (citation omitted). The court only reviews the contents of the complaint, accepting all factual allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009) (citation omitted).
Despite the deference, the court need not accept "legal conclusions" as true. Ashcroft v. Iqbal, --- U.S. ---, 129 S.Ct. 1937, 1949-50 (2009). It is also improper for the court to assume "the [plaintiff] can prove facts that [he or she] has not alleged." Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). On the other hand, "[w]hen 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." Iqbal, 129 S.Ct. at 1950.
Plaintiffs' SAC alleges the following twelve causes of action: (1) violation of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq.; (2) violation of the California Rosenthal Fair Debt Collection Practices Act ("Rosenthal Act"), CAL. CIV. CODE § 1788 et seq.; (3) violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq.; (4) violation of California Civil Code § 2923.5; (5) wrongful foreclosure; (6) violation of California Civil Code § 2943 and the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2605 et seq.; (7) breach of fiduciary duty; (8) fraud - intentional misrepresentation; (9) fraud - negligent misrepresentation; (10) violation of California Business and Professions Code § 17200; (11) quiet title; and (12) elder financial abuse in violation of Welfare and Institutions Code § 15610 et seq. In their Motions to Dismiss, Defendants ask the Court to dismiss all of these causes of action for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).
I. First cause of action--TILA violation
Plaintiffs' first cause of action alleges Defendants violated TILA and Regulation Z, 12 C.F.R. 226, by failing to make some material disclosures, or failing to accurately disclose, and by "making consumer credit disclosures that do not reflect the terms of the legal obligation between the parties." (SAC ¶ 55.) Plaintiffs allege these violations entitle them to rescission as well as actual, statutory, and punitive damages. (SAC ¶¶ 58-60.) Plaintiffs further allege that if they prevail on this cause of action, "they are aware and believe they will be able to tender." (SAC ¶ 62.)
To the extent Plaintiffs' SAC asserts a TILA claim for damages, the Court notes it has already dismissed this claim with prejudice when ruling on Defendants' motions to dismiss the FAC. Claims for damages under TILA must be commenced within one year following the date of the alleged violation. See 15 U.S.C. § 1640(e); see also Lynch v. RKS Mortgage Inc., 588 F. Supp. 2d 1254, 1259 (E.D. Cal. 2008). This includes both actual and statutory damages. See 15 U.S.C. § 1640(a). The date of violation refers to the date of the consummation of the transaction, unless the doctrine of equitable tolling applies. King v. State of Cal., 784 F.2d 910, 915 (9th Cir. 1986). In the present case, because the loan transaction took place on October 31, 2006, but the complaint was not filed until July 17, 2009, the running of the statute of limitations on Plaintiffs' TILA claim for damages is clear on the face of the complaint. Accordingly, the Court GRANTS the motion to dismiss in this regard and DISMISSES WITH PREJUDICE the TILA claim for damages.
The Court also reaffirms its prior ruling on Plaintiffs' TILA claim for rescission. As the Court noted when denying Defendants' previous motions to dismiss on this ground, Plaintiffs' allegations, "if true, would entitled Plaintiffs to rescind the loan within three years." See 15 U.S.C. § 1635(f); 12 C.F.R. 226.15(a)(3). Moreover, the Court at that time also indicated it would not "require Plaintiffs to demonstrate an ability to tender at this stage of the proceedings." See Yamamoto v. Bank of N.Y., 329 F.3d 1167, 1173 (9th Cir. 2003) (noting that the decision on whether to depart from the statutory rescission-tender sequence is left to the discretion of the district court, and must be approached on a "case-by-case basis"). Rather, this Court only required Plaintiffs "to allege, consistent with Fed. R. Civ. P. 11, their readiness to tender the proceeds of the loan if Plaintiffs do prevail on their TILA rescission claim." (Order Granting in Part and Denying in Part Motions to Dismiss, at 6 [hereinafter, "MTD Order"].) Plaintiffs have done so in their SAC. (See SAC ¶ 62.) Accordingly, the Court DENIES the motion to dismiss as it relates to Plaintiffs' TILA claim for rescission.
II. Second and third causes of action--Violations of the Rosenthal Act and the FDCPA
Plaintiffs' second cause of action alleges Defendants IndyMac and OneWest violated the Rosenthal Act by threatening to take actions prohibited by law, including: falsely stating the amount of debt; increasing the amount of debt by including amounts not permitted by law or contract; improperly conducting foreclosure proceedings upon the subject property; and using unfair and unconscionable means in an attempt to collect a debt. (SAC ¶ 64.) Plaintiffs' third cause of action alleges Defendant OneWest violated the FDCPA: (1) "by misrepresenting the imminence of legal action when attempting to conduct foreclosure proceedings without legal rights to do so," in violation of 15 U.S.C. § 1692e(2)(A), (5), & (10); and (2) "by failing to provide verification of the debt and continuing its debt collections efforts after the plaintiffs had disputed the debt in writing after receiving of [sic] their debt validation rights," in violation of 15 U.S.C. § 1692g(b). (SAC ¶ 76.)
To be liable for a violation of the FDCPA or the Rosenthal Act, the defendant "must--as a threshold requirement--fall within the Act's definition of 'debt collector.'" See Izenberg v. ETS Servs., LLC, 589 F. Supp. 2d 1193, 1198 (C.D. Cal. 2008) (citing Heintz v. Jenkins, 514 U.S. 291, 294 (1995), and Romine v. Diversified Collection Servs., 155 F.3d 1142, 1146 (9th Cir. 1998)). The FDCPA provides that the term "debt collector" does not include any person who collects any debt owed or due to the extent such activity "concerns a debt which was not in default at the time it was obtained by such person." 15 U.S.C. § 1692a(6)(F)(iii). The definition of the "debt collector" under the Rosenthal Act is broader, and includes any person who collects a debt "on behalf of himself or herself or others." See CAL. CIV. CODE § 1788.2(c). Moreover, the FDCPA defines "debt" as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment." 15 U.S.C. § 1692a(5). Under the Rosenthal Act, the term "debt" means "money, property or their equivalent which is due or owing or alleged to be due or owing from a natural person to another person." CAL. CIV. CODE § 1788.2(d).
In this case, even if OneWest and IndyMac are "debt collectors," Plaintiffs nonetheless failed to demonstrate their actions in this case are covered by the FDCPA or the Rosenthal Act. Numerous district courts have held that the activity of foreclosing on a property pursuant to a deed of trust is not "collection of a debt" within the meaning of either statute. See, e.g., Diessner v. Mortgage Elec. Reg. Sys., 618 F. Supp. 2d 1184, 1189 (D. Ariz. 2009); Izenberg, 589 F. Supp. 2d at 1199; Hulse v. Ocwen Fed. Bank, FSB, 195 F. Supp. 2d 1188, 1204 (D. Or. 2002); Ricon v. Recontrust Co., No. 09cv9370IEG-JMA, 2009 WL 2407396, at *3 (S.D. Cal. Aug. 4, 2009). As one court has explained:
Foreclosing on a trust deed is distinct from the collection of the obligation to pay money. The FDCPA is intended to curtail objectionable acts occurring in the process of collecting funds from a debtor. But, foreclosing on a trust deed is an entirely different path. Payment of funds is not the object of the foreclosure action. Rather, the lender is foreclosing its interest in the property.
. . . . Foreclosure by the trustee is not the enforcement of the obligation because it is not an attempt to collect funds from the debtor.
Hulse, 195 F. Supp. 2d at 1204; accord Ricon, 2009 WL 24077396 ("'Foreclosing on a deed of trust does not invoke the statutory protections of the Rosenthal Act.'" (citation omitted)). Accordingly, because Defendants' actions are not covered by either statute, the Court GRANTS the motion to dismiss in this regard and DISMISSES WITH PREJUDICE the FDCPA and the Rosenthal Act claims against Defendants OneWest and IndyMac..
III. Fourth cause of action--Violation of California Civil Code § 2923.5
In their fifth cause of action, Plaintiffs allege Defendants "failed to contact [them], or perform the required due diligence to make contact, to discuss Plaintiffs' financial situation and explore options for the borrower to avoid foreclosure at least 30 days prior to recordation and service a [sic] Notice of Default, in violation of California Civil Code §2923.5." (SAC ¶ 79.) In response, Defendants argue this cause of action should be dismissed because: (1) it is preempted by the Home Owner's Loan Act ("HOLA"), 12 U.S.C. § 1464; (2) Plaintiffs failed to demonstrate any deficiency in compliance with the California Civil Code § 2923.5; and (3) the California Civil Code § 2923.5 does not provide for a private right of action. (Def. MTD, at 8-14.)
Defendants argue Plaintiffs' claim under § 2923.5 is preempted by HOLA. It is well-established that "preemption may be inferred when federal regulation in a particular field is 'so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it.'" Bank of Am. v. City & County of S.F., 309 F.3d 551, 558 (9th Cir. 2002) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947)). As the Ninth Circuit has noted, "Congress has legislated in the field of banking from the days of M'Culloch v. Maryland, 17 U.S. (4 Wheat.) 316, 325-26, 426-27, 4 L.Ed. 579 (1819), creating an extensive federal statutory and regulatory scheme." Id.
Specific to this case, Congress enacted HOLA during the Great Depression, "at a time when record numbers of home loans were in default and a staggering number of state-chartered savings associations were insolvent." Silvas v. E*Trade Mortgage Corp., 514 F.3d 1001, 1004 (9th Cir. 2008) (citing Bank of Am., 309 F.3d at 559). "HOLA was designed to restore public confidence by creating a nationwide system of federal savings and loan associations to be centrally regulated according to nationwide 'best practices.'" Id. (quoting Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 160-61 (1982)). Since then, HOLA has been described as "a 'radical and comprehensive response to the inadequacies of the existing state system,' and 'so pervasive as to leave no room for state regulatory control.'" Id. at 1004-05 (citation omitted).
Through HOLA, Congress gave the Office of Thrift Supervision ("OCT") broad authority to issue regulations governing thrifts. 12 U.S.C. § 1464; Silvas, 514 F.3d at 1005. Pursuant to this authority, the OCT promulgated a preemption ...