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Kozhayev v. America's Wholesale Lender

July 30, 2010



This case came before the court on December 4, 2009, for hearing on defendants' motion to dismiss and/or strike plaintiffs' complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(f). (Doc. No. 5). Berrie R. Goldman, Esq. appeared telephonically at that time for all defendants. Plaintiffs did not file written opposition to the motion nor did they appear at the hearing.*fn1 Upon consideration of all written materials filed in connection with the motion, counsel's arguments at the hearing, and the entire file, the undersigned recommends that defendants' motion be granted and this action be dismissed.


Plaintiffs originally filed their complaint on September 10, 2009, in the Solano County Superior Court. On October 13, 2009, defendants removed the action pursuant to 28 U.S.C. § 1441(b) on the grounds that this court has original jurisdiction over plaintiffs' claims brought under federal law, including the Federal Fair Debt Collections Practices Act (FDCPA) and the Real Estate Settlement Procedures Act (RESPA). See Notice of Removal (Doc. No. 1).


In the brief factual allegations of their complaint, plaintiffs allege as follows. (Doc. No. 1-2 at ¶¶ 7-11.) Plaintiffs purchased the subject property located at 2969 Waterman Boulevard in Fairfield, California on December 21, 2006. They financed the purchase through a thirty-year adjustable rate mortgage loan in the amount of $518,450 secured by a First Deed of Trust on the subject property which they arranged through a Ron Allen & Associates. The loan was based on plaintiffs' stated, rather than verified, income. Plaintiffs' native language is Russian and the loan documents were not translated into Russian for them. The beginning interest rate on the mortgage loan was 5.875 %. The first rate adjustment under the terms of the loan took place on December 1, 2007. Thereafter, plaintiffs did not have sufficient income to meet their mortgage obligation. Accordingly, on February 25, 2008, plaintiffs were served with a Notice of Default and Election to Sell under Deed of Trust which was not in the Russian language.

Plaintiffs claim that defendant Recontrust Company is not the holder of the note identified in the Notice of Default. In addition, plaintiffs assert that defendant Countrywide Home Loans d.b.a. America's Wholesale Lender, does not have the right to direct defendant Recontrust Company to foreclose upon and sell the subject property. Finally, plaintiff s demand that defendants suspend foreclosure proceedings until they prove they possess the original promissory note.

Based on these allegations, plaintiffs purport to state several causes of action, including those for quiet title, rescission based on violation of California Civil Code §1632, fraud, unfair debt collection practices, unfair business practices, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, violation of 15 U.S.C. § 1639 (Home Ownership and Equity Protection Act - HOEPA) and for declaratory and injunctive relief. Plaintiffs also seek an injunction against foreclosure proceedings, a declaration that the loan transaction in question is void and the award of compensatory and punitive damages as well as costs.


Defendants seek dismissal of plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) on the grounds that they have failed to state any cognizable claim. Specifically, defendants argues that plaintiffs lack standing to prevent foreclosure or invalidate the loan because they have not tendered repayment of the loan. In addition, defendants contend that plaintiffs have not stated, and cannot state, cognizable claims for quiet title, violation of California Civil Code § 1632, rescission, unfair debt collection practices, fraud, breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, violation of 15 U.S.C. § 1639(h) or for declaratory or injunctive relief. Finally, defendants argue that plaintiffs' request for punitive damages should be stricken pursuant to Federal Rule of Civil Procedure 12(f).

As noted above, plaintiffs have filed no written opposition to the motion and did not appear at the hearing on defendants' motion to dismiss.


The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal sufficiency of the complaint. N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). "Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff is required to allege "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). Thus, a defendant's Rule 12(b)(6) motion challenges the court's ability to grant any relief on the plaintiff's claims, even if the plaintiff's allegations are true.

In determining whether a complaint states a claim on which relief may be granted, the court accepts as true the allegations in the complaint and construes the allegations in the light most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1989). In general, pro se complaints are held to less stringent standards than formal pleadings drafted by lawyers. Haines v. Kerner, 404 U.S. 519, 520-21 (1972). However, the court need not assume the truth of legal conclusions cast in the form of factual allegations. W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).

With regard to claims of fraud, "the circumstances constituting fraud . . . shall be stated with particularity." Fed. R. Civ. P. 9(b). "Rule 9(b) serves not only to give notice to defendants of the specific fraudulent conduct against which they must defend, but also 'to deter the filing of complaints as a pretext for the discovery of unknown wrongs, to protect [defendants] from the harm that comes from being subject to fraud charges, and to prohibit plaintiffs from unilaterally imposing upon the court, the parties and society enormous social and economic costs absent some factual basis.'" Bly-Magee v. California, 236 F.3d 1014, 1018 (9th Cir. 2001) (quoting In re Stac Elec. Sec. Litig., 89 F.3d 1399, 1405 (9th Cir. 1996)). Thus, pursuant to Rule 9(b), a plaintiff alleging fraud at a minimum must plead evidentiary facts such as the time, place, persons, statements and explanations of why allegedly misleading statements are misleading. In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541');">42 F. 3d 1541, 1547 n.7 (9th Cir. 1994); see also Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003); Fecht v. Price Co., 70 F.3d 1078, 1082 (9th Cir. 1995).*fn2

Finally, Federal Rule of Civil Procedure 12(f) enables the court by motion by a party or by its own initiative to "order stricken from any pleading . . . any redundant, immaterial, impertinent, or scandalous matter." The function of a 12(f) motion is to avoid the time and expense of litigating spurious issues. Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir.1993), rev'd on other grounds, 510 U.S. 517 (1994); see also 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1380 (2d ed.1990). Rule 12(f) motions are generally viewed with disfavor and not ordinarily granted because they are often used to delay and because of the limited importance of the pleadings in federal practice. Bureerong v. Uvawas, 922 F. Supp. 1450, 1478 (C.D. Cal.1996). A motion to strike should therefore not be granted unless it is absolutely clear that the matter to be stricken could have no possible bearing on the litigation. Lilley v. Charren, 936 F. Supp. 708, 713 (N.D. Cal.1996).

For the reasons set forth below, the undersigned will recommend that defendants' motion to dismiss be granted in its entirety.


The undersigned finds that plaintiff's failure to file written opposition and failure to appear at the hearings on defendants' motions to dismiss, considered together with plaintiff's failure to participate in this action since its removal to this court, should be deemed a statement of no opposition to the granting of all of defendants' motions. Nonetheless, in light of plaintiff's pro se status, the undersigned has reviewed defendants' arguments and addresses each of them briefly below.

At the outset, defendants have requested judicial notice of documents related to the matters at issue. (Docs. No. 6.) Specifically, defendants request that the court take judicial notice of the Construction Loan Agreement and Addendum dated December 22, 2006 signed by plaintiff Pavel Kozhayev and referenced in plaintiffs' complaint as well as the Deed of Trust, including Mortgage Rider for Construction Loan and Adjustable Rate Rider recorded in the Solano County Official Records on January 2, 2007. (Id., Exs. A and B.) Defendants' requests for judicial notice will be granted pursuant to Federal Rule of Evidence 201. See Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001) (on a motion to dismiss, court may consider matters of public record); MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986) (on a motion to dismiss, the court may take judicial notice of matters of public record outside the pleadings).

I. Plaintiffs' Lack Standing

Defendants observe that all but one of plaintiffs' nine causes of action request that this court enjoin the foreclosure proceedings and/or order rescission of the loan agreement but that plaintiffs lack standing to bring such claims because they have not alleged the ability to tender the entire loan amount to the lender. Defendants' argument is persuasive.

"A valid and viable tender of payment of the indebtedness owing is essential to an action to cancel a voidable sale under a deed of trust." Karlsen v. American Sav. & Loan Assn., 15 Cal. App.3d 112,117 (Cal. App.2d Dist.1971). The overwhelming majority of California district courts utilize the Karlsen rationale in examining wrongful foreclosure claims. Anaya v. Advisors Lending Group, 2009 U.S. Dist. LEXIS 68373, 2009 WL 2424037 (E.D. Cal. August 3, 2009) ("Plaintiff offers nothing to indicate that she is able to tender her debt to warrant disruption of non-judicial foreclosure"); Alicea v. GE Money Bank, 2009 U.S. Dist. LEXIS 60813, 2009 WL 2136969 (N.D. Cal. July 16, 2009) ("When a debtor is in default of a home mortgage loan, and a foreclosure is either pending or has taken place, the debtor must allege a credible tender of the amount of the secured debt to maintain any cause of action for foreclosure."); Montoya v. Countrywide Bank, 2009 U.S. Dist. LEXIS 53920, 2009 WL 1813973 (N.D. Cal. June 25, 2009) ("Under California law, the "tender rule" requires that as a precondition to challenging a foreclosure sale, or any cause of action implicitly integrated to the sale, the borrower must make a valid and viable tender of payment of the secured debt"). The application of the "tender rule" prevents "a court from uselessly setting aside a foreclosure sale on a technical ground when the party making the challenge has not established his ability to purchase the property." Williams v. Countrywide Home Loans, 1999 U.S. Dist. LEXIS 14550, 1999 WL 740375 (N.D. Cal. Sept. 15, 1999).

Somera v. Indymac Federal Bank, FSB, No. 2:09-cv-1947-FCD-DAD, 2010 WL 761221, at *8 (E.D. Cal. Mar. 3, 2010). See also Yamamoto v. Bank of New York, 329 F.3d 1167, 1171 (9th Cir. 2003) (holding that rescission under TILA "should be conditioned on repayment of the amounts advanced by the lender" and explaining that, because rescission is a remedy that restores the status quo ...

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