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Sullivan v. JP Morgan Chase Bank

June 29, 2010


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


Defendant moves for dismissal of Plaintiffs' Complaint under Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)"), arguing Plaintiffs have failed to allege sufficient facts to state viable claims. For the reasons stated below, the motion is granted and denied in part.


A Rule 12(b)(6) dismissal motion tests the legal sufficiency of the claims alleged in the complaint. Novarro v. Black, 250 F.3d 729, 732 (9th Cir. 2001). 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).

Dismissal of a claim under Rule 12(b)(6) is appropriate only where the complaint either 1) lacks a cognizable legal theory, or 2) lacks factual allegations sufficient to support a cognizable legal theory. Balistreri v. Pacific Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). 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.

In deciding a Rule 12(b)(6) motion, the material allegations of the complaint are accepted as true and all reasonable inferences are drawn in favor of the plaintiff. See 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 Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949-50 (2009); Twombly, 550 U.S. at 555.

If a Rule 12(b)(6) motion is granted, the "district court should grant leave to amend even if no request to amend the pleadings is 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)(quoting Doe v. U.S., 58 F.3d 484, 497 (9th Cir. 1995)).

Defendant's motion includes a request that the Court take judicial notice of two Deeds of Trust recorded on December 3, 2007 with the Nevada County Recorder. (Defendant's Request for Judicial Notice ("RJN") Exs. 1-2.) Plaintiffs do not oppose Defendant's request.

"As a general rule, a district court may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion." Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) (quotations and citation omitted). However, a court may consider matters properly subject to judicial notice. Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). A matter may be judicially noticed if it is either "generally known within the territorial jurisdiction of the trial court" or "capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b).

Since the Deeds of Trust are publically recorded documents, they may be judicially noticed. See W. Fed. Sav. & Loan Ass'n v. Heflin Corp., 797 F. Supp. 790, 792 (1992)(taking judicial notice of documents in a county's public record, including deeds of trust). Therefore, Defendant's request that these documents be judicially noticed is granted.


Plaintiffs obtained two loans from Defendant around November of 2007, which were secured by their home in Grass Valley, California. (Compl. ¶¶ 6, 45.) The loans were memorialized in Promissory Notes secured by Deeds of Trust on the property. (Id. ¶ 45.) The Deeds of Trust identify Defendant as the lender. (RJN, Exs. 1-2.)

Plaintiffs allege Defendant directed them into unaffordable loans and subsequently misrepresented that permanent loan modifications would be made. (Id. ¶¶ 11-49.) Specifically, Plaintiffs allege Defendant represented that "the loan[s were] the best loan[s] available on the market," procured the loans on "false information of plaintiff's income," over appraised the value of the property, and did not disclose "to plaintiffs their likely inability to make the monthly payments due on the loan[s]." (Id. ¶¶ 12.) Plaintiffs also allege when they approached Defendant to modify the terms of their loans to reduce their monthly payments, it "misrepresented... that a permanent loan modification would be put in place;" Plaintiffs' monthly payments were reduced for six months, but no permanent modification was made. (Id. ¶¶ (Id. ¶¶ 18-20.)


Plaintiffs allege ten claims against Defendant in their Complaint under federal and state law.

1. Truth in Lending Act Claims

Defendant argues Plaintiffs' Truth in Lending Act ("TILA") claims should be dismissed. Specifically, Defendant contends Plaintiffs' TILA damages claim is barred by the applicable one-year statute of limitations, and Plaintiffs' TILA rescission claim is defective because Plaintiffs failed to allege "the ability to tender or reinstate the subject loan transactions." (Def.'s Mot. to Dismiss ("Mot.") 2:8-9, 2:22-23.) Plaintiffs counter their damages claim should not be dismissed because they have alleged sufficient facts to show the statute of limitations is equitably tolled. (Pls.' Opp'n to Mot. to Dismiss ("Opp'n") 2:17-25.) Plaintiffs also rejoin that their ability to "tender" is not an element required to be plead, and in the alternative, they have sufficiently alleged the tender element. (Opp'n 3:20-22.)

a. TILA Damages Claim

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." Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998)(citing 15 U.S.C. §§ 1631, 1632, 1635, 1638)). Failure to satisfy TILA's disclosure requirements subjects a lender to "statutory and actual damages traceable to a lender's failure to make the requisite disclosures . . . ." Id. (citing 15 U.S.C. § 1640(e)). TILA imposes a one-year statute of limitations within which a claim for damages "may be brought." 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). However, "the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period," such as when the borrower did not have reasonable opportunity to discover the alleged fraud or nondisclosures that form the basis of the plaintiff's TILA claim. Id.

"Because the applicability of [equitable tolling] often depends upon matters outside the pleadings, it is not generally amenable to resolution on a Rule 12(b)(6) motion." Supermail Cargo, Inc. v. U.S., 68 F.3d 1204, 1206 (9th Cir. 1995)(quotations and citation omitted). Nonetheless, when a plaintiff fails to allege any facts demonstrating the TILA violations alleged could not have been discovered by due diligence during the one-year statutory period, equitable tolling should not be applied and dismissal at the pleading stage is appropriate. See Meyer v. Ameriquest Mortg. Co., 342 F.3d 899, 902 (9th Cir. 2003)(dismissing TILA claim, despite request for equitable tolling, because plaintiff was in possession of all loan documents and did not allege any concealment or other conduct that would have prevented discovery of the alleged TILA violations during the one year limitations period).

Plaintiffs allege Defendant violated TILA as follows: by failing to give Plaintiffs "the mortgage documents," "disclosures," and "notices" "until after the settlement had taken place;" failing to group together and segregate the required disclosures; and "inflat[ing] the acceleration fees." (Compl. ¶ 65.) Further, Plaintiffs allege "the facts surrounding this loan transaction were purposefully hidden to prevent [them] from discovering the true nature of the transaction and the documents involved therein...." (Id. ¶ 43.) Plaintiffs also allege these TILA violations were "all discovered within the past year, such that any applicable statute of limitations are extended or should be extended pursuant to the equitable tolling doctrine...." (Id. ¶ 49.)

Plaintiffs' conclusory concealment allegations are insufficient to show the statute of limitations period is equitably tolled. The TILA violations about which Plaintiffs complain occurred at or prior to the closing of Plaintiffs' loan transactions in November of 2007, more than two years before the commencement of this action. Plaintiffs fail to allege what prevented them from discovering Defendant's alleged TILA violations within the one year statutory period. See Ahmad v. World Savings Bank, No. CIV 2:09-520 GEB KJM, 2010 WL 1854108, at *2 (E.D. Cal. May 6, 2010)(citing Adams v. SCME Mortgage Bankers, Inc., No. CIV 1:09-201 LJO SMS, 2009 WL 1451715, at *9 (E.D. Cal. May 22, 2009)(finding equitable tolling inapplicable since plaintiff failed to allege facts explaining how she was prevented from comparing her loan documents and disclosures with TILA statutory and regulatory requirements)). Therefore, Plaintiffs' TILA damages claim is dismissed.

b. TILA Rescission Claim

Defendant's motion to dismiss Plaintiffs' TILA rescission claim is based on its argument that Plaintiffs have not alleged their ability to tender the property or its reasonable value, which Defendant alleges is required to state a TILA rescission claim. However, Defendant fails to provide binding authority to support its position that a plaintiff's ability to tender must be alleged at the pleading stage. Therefore, Defendant's motion to dismiss Plaintiffs' TILA rescission claim is denied.

2. The Rosenthal Act

Defendant seeks dismissal of Plaintiffs' Rosenthal Fair Debt Collections Practices Act ("Rosenthal Act") claim, arguing mortgage loans are not debt under the Act, and Plaintiffs failed to allege which sections of the Act Defendant violated "beyond the boilerplate ...

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