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Mehta v. First American Title Insurance Co.

August 26, 2010


The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge


(Doc. Nos. 8 & 11)

Presently before the Court are Defendants Wells Fargo Bank, N.A. and Wells Fargo Home Mortgage's (collectively "Wells Fargo") motion to dismiss (Doc. No. 8 (Wells Fargo MTD)) and Defendant First American Title Insurance Company's motion to dismiss. (Doc. No. 9 (First American MTD).) Also before the Court are Plaintiff's oppositions (Doc. Nos. 16 (Opp. to Wells Fargo's MTD) & 17 (Opp. to First Am.'s MTD)) and Defendants' replies. (Doc. Nos. 18 (Reply ISO First Am.'s MTD) & 20 (Reply ISO Well's Fargo's MTD).) Having fully considered the legal and factual issues surrounding these motions, the Court GRANTS both motions to dismiss.


Plaintiff Jimit Mehta is "a co-owner as tenants in common . . . of the real property located at 135 5th Street, Encinitas, CA 92024." (Doc. No. 1, Ex. A at 151--230 (FAC) ¶ 2.) Plaintiff "refinanced a prior loan secured by [his] Real Property on . . . February 26, 2007 by signing a promissory note in favor of WFBNA." (Id. ¶ 7.) This loan "was in the amount of two million" dollars. (Id. ¶11.) On "March 23, 2009, [Wells Fargo] and FIRST AMERICAN . . . claimed that Plaintiff was in default on the Loan as reported on the Notice of Default and Election to Sell Under Deed of Trust ('NOD'). (Id. ¶ 8.) Defendant First American "recorded a Notice of Trustee Sale . . . on June 26, 2009," with the sale scheduled for July 16, 2009. (Id. ¶ 12.)

On July 9, 2009, Plaintiff hired counsel "to negotiate a loan modification on his behalf." (Id. ¶ 13.) On July 13, 2009, Plaintiff submitted a loan modification package to Wells Fargo. (Id. ¶ 14.) Plaintiff's counsel*fn1 "spoke with an agent of [Wells Fargo] by the name of Debra DeCristoforo . . . who stated that [Wells Fargo] owned the Loan and that a complete loan package had been received." (Id. ¶ 15.) Ms. DeCristoforo allegedly told Plaintiff's counsel that Plaintiff's "file was being escalated for the postponement of the Trustee's Sale." (Id. ¶ 16.) On July 29, 2009, Plaintiff's counsel "spoke with an agent of [Wells Fargo] by the name of Josh" who told counsel "that the financial worksheet and profit and loss statements needed to be signed and dated." (Id. ¶ 17.) Plaintiff claims that he complied. (Id.) On August 8, 2009, counsel again "spoke with an agent of [Wells Fargo] by the name of Sarah" who told counsel "that no negotiator had yet been assigned and to call back." (Id. ¶ 18.) Counsel again called Wells Fargo on August 14, 2009. (Id. ¶ 19.) According to Plaintiff, counsel spoke with "Andrea" who said "that she was emailing the Foreclosure Department to escalate the file and postpone the trustee's sale date." (Id.) According to Plaintiff, the "sale date was postponed and the new sale date was [] set for October 6, 2009." (Id.)

Counsel placed another call to Wells Fargo on August 21, 2009 and discovered that Wells Fargo believed "that Plaintiff had called in and requested cancellation of the workout, which was not true." (Id. ¶ 20.) When they cleared up that issue, Defendant "placed Plaintiff in a trial modification." (Id. ¶ 21.) "Plaintiff complied with the payment terms of the trial modification and made every payment on time." (Id. ¶ 23.) As such, "the trustee's sale date was again postponed . . . to January 5, 2010." (Id.)

Subsequently, Defendant Wells Fargo sought further information including "a copy of the divorce decree, hardship letter, and updated bank statements for Plaintiff's business and personal tax returns." (Id. ¶ 24.) Plaintiff sent almost everything, but only a part of his divorce decree. (Id. ¶¶ 24--25.) When counsel spoke with Wells Fargo on November 30, 2009, she was told "that the modification had been cancelled because all pages of the divorce decree had not been received and that the file would have to be resubmitted to complete a loan modification." (Id. ¶ 26.) Plaintiff submitted that information on December 10, 2009 and was told to call back "to set up another trial modification." (Id. ¶ 27.)

When Plaintiff's counsel called back, she was told "that Plaintiff had to wait for the file to be submitted to loss mitigation before financials could be reviewed." (Id. ¶ 28.) When counsel again called, Wells Fargo's employee told her "that the file was still not in the loss mitigation department" but "confirmed receipt of the fax and all required items." (Id. ¶ 29.) That employee also "stated that she was escalating the file to loss mitigation." (Id.) Later another Wells Fargo employee stated "that the file had been escalated and that [Wells Fargo] was postponing the trustee's sale date." (Id. ¶ 30.)

However, on January 5, 2010, Plaintiff found out that the sale would be held as scheduled. (Id. ¶ 31.) Moreover, Plaintiff's counsel was told "that the file had never been escalated." (Id. ¶ 32.) However, the employee told counsel that he would attempt to have the sale postponed. (Id.) Shortly thereafter, counsel was told "that the file had been escalated and the loss mitigation department had not responded." (Id.) After further phone calls to Wells Fargo produced no result, counsel called First American and talked with an employee who told her "that he was going to put the trustee's sale on hold until he could confirm with [Wells Fargo] whether or not [it] would postpone the trustee's sale." (Id. ¶¶ 33--37.) However, a further call to Wells Fargo determined "that [Wells Fargo] was taking Plaintiff's Residence to sale." (Id. ¶ 38.) The sale occurred later that day. (Id. ¶ 42.)


Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the defense that the complaint "fail[s] to state a claim upon which relief can be granted," generally referred to as a motion to dismiss. The Court evaluates whether a complaint states a cognizable legal theory and sufficient facts in light of Federal Rule of Civil Procedure 8(a), which requires a "short and plain statement of the claim showing that the pleader is entitled to relief." Although Rule 8 "does not require 'detailed factual allegations,' . . . it [does] demand[] more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, -- US - , 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 557).

"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Id. (quoting Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible when the facts pled "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 556). That is not to say that the claim must be probable, but there must be "more than a sheer possibility that a defendant has acted unlawfully." Id. Facts "'merely consistent with' a defendant's liability" fall short of a plausible entitlement to relief. Id. (quoting Twombly, 550 U.S. at 557). Further, the Court need not accept as true "legal conclusions" contained in the complaint. Id. This review requires context-specific analysis involving the Court's "judicial experience and common sense." Id. at 1950 (citation omitted). "[W]here 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 'show[n]'-'that the pleader is entitled to relief.'" Id.



Both Wells Fargo and First American have requested that this Court take judicial notice of certain documents. (See Doc. Nos. 8-2 (Wells Fargo's RJN) & 11-1 (First Am.'s RJN).) Generally on a motion to dismiss, a court may only consider three things: (1) "allegations contained in the pleadings," (2) "exhibits attached to the complaint," and (3) "matters properly subject to judicial notice." Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007) (citation omitted). However, a Court may also "consider a writing referenced in a complaint but not explicitly incorporated therein if the complaint relies on the document and its authenticity is unquestioned." Swartz, 476 F.3d at 763 (citation omitted).

Wells Fargo asks the Court to take notice of the Notice of Right to Cancel. (Wells Fargo's RJN at 1.) They do not, however, explain into which of the above-listed categories this document falls. And the Court cannot find a permissible avenue for its consideration. It is not a matter properly subject to judicial notice under Federal Rule of Evidence 201. And although the First Amended Complaint (FAC) alleges that Plaintiff did not receive "two copies . . . the Notice of Right to Cancel," this document is not encompassed by the rule allowing consideration of "a writing referenced in a complaint but not explicitly incorporated therein" because the complaint does not "rel[y] on the document." Swartz, 476 F.3d at 763. This evidence is more properly received on a motion for summary judgment. Therefore, Wells Fargo's request for judicial notice is DENIED.

First American seeks judicial notice of five documents: (1) the Deed of Trust, (2) Substitution of Trustee relating to the Deed of Trust, (3) Notice of Default and Election to Sell, (4) Notice of Trustee's Sale, and (5) Trustee's Deed Upon Sale. (First Am.'s RJN at 2.) Plaintiff has not opposed this request. The Court finds that each of these documents is properly judicially noticed. All are publicly recorded and their authenticity is not in dispute. Further, they are each repeatedly referenced in the FAC. As such, First American's request for judicial notice is GRANTED.


The FAC alleges fourteen causes of action, all of which are pled against Wells Fargo and all but three of which are pled against First American. Both parties challenge all of these claims in their motions to dismiss.

A. Truth In Lending Act Claim

Plaintiff's first cause of action is for violations of the Truth in Lending Act (TILA) against Defendant Wells Fargo only. He claims that he "did not receive all required 'material disclosures,' including but not limited to two copies of each of the Notice of Right to Cancel containing the correct date of expiration of the cancellation period for the transaction." (FAC ¶ 53.) Further, Plaintiff alleges that he rescinded his loan on January 19, 2010 but Defendants have failed to take appropriate action. (Id. ¶¶ 49 & 55--57.) From this, Plaintiff seeks both damages and rescission of the loan transaction.

Wells Fargo argues that this claim must be dismissed because it is barred by the statute of limitations.*fn2 (Wells Fargo's MTD at 5.) It asserts that a damages claim must be brought within one year of the occurrence of the TILA violation which is "the date the loan transaction is consummated." (Id.) Since the loan was consummated on February 16, 2007, Plaintiff's complaint, filed on January 13, 2010, was not within that window.

Further, Wells Fargo also argues the rescission claim is time barred. (Id.) This is because the right to rescind under TILA expired when the trustees sale took place. (Id. at 6.) Since the foreclosure sale was January 5, 2010 and Plaintiff did not attempt to rescind until January 19, 2010, he could no longer exercise his right to rescind. (Id.) Wells Fargo also argues that "Plaintiff's failure to allege tender dooms [his] TILA rescission claim." (Id.)

The Court agrees with Wells Fargo. Under 15 U.S.C. § 1635(f), "An obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor." 15 U.S.C. § 1635(f) (emphasis added); see also 12 C.F.R. § 226.23(a)(3) (stating same). The Ninth Circuit has unequivocally stated that the sale of property is an absolute bar to rescission. Meyer v. Ameriquest Mortgage Co., 342 F.3d 899, 902 (9th Cir. 2003) (citing 12 C.F.R. § 226.23(a)(3)); see also Hefferman v. Bitton, 882 F.2d 379, 383--84 (9th Cir. 1989); Rosal v. First Fed. Bank of Cal., 671 F. Supp. 2d 1111, 1124 (N.D. Cal. 2009). This tracks the statute's and regulation's language which offer no flexibility in this requirement. See Meyer, 342 F.3d at 903 ("The regulation is clear: the right to rescind ends with the sale.").

Plaintiff's counter-arguments do not rebut this point. Plaintiff claims that "the Trustee's sale was void or voidable" and "[n]o valid sale ever took place." (Opp. to Wells Fargo's MTD at 4.) However, Plaintiff's FAC provides no basis on which the sale could be avoided and Plaintiff offers no other basis for avoiding the force of TILA's explicit limitations period.

Since Plaintiff's property has been sold in this case Wells Fargo's motion to dismiss must be GRANTED as to his TILA rescission claims. The statue and the regulation are clear, even if Plaintiff did not properly receive notice of his right to cancel, his right to rescission expired on January 5, 2010 when the property was sold. And since Plaintiff cannot possibly correct this deficiency, the TILA rescission request must be DISMISSED WITH PREJUDICE.

Next, the Court also finds that the damages claims must be DISMISSED WITH PREJUDICE. As Plaintiffs point out, TILA damages claims for disclosure violations must be brought within one year of the date a loan transaction is consummated. King v. California, 784 F.2d 910, 915 (9th Cir. 1986); 15 U.S.C. § 1640(e). Thus, to the extent that Plaintiff's damages claim is based upon Wells Fargo's alleged failure to provide all required disclosures, the limitations period expired on February 16, 2008. Further, Plaintiff cannot obtain damages for Wells Fargo's "fail[ure] to comply with the rescission provisions of 12 CFR 226.23" because, as discussed above, Plaintiff's right to rescind and Defendant's duty to comply with the rescission procedures expired on January 5, 2010. Thus, Plaintiff's TILA claim is DISMISSED WITH PREJUDICE.

B. California Civil Code Section 2923.5 Claim

Next, Wells Fargo and First American assert that Plaintiff's claim under California Civil Code section 2923.5 fails. This Court agrees.

"Civil Code section 2923.5 requires, before a notice of default may be filed, that a lender contact the borrower in person or by phone to 'assess' the borrower's financial situation and 'explore' options to prevent foreclosure." Mabry v. Superior Court, - Cal. Rptr. 3d -, 2010 WL 2180530, *1 (Cal. Ct. App. 2010). The requirements of this section are "very narrow." Id. at * 12. They do not require the lender to modify the loan or do very much more than have minimal conversations with the debtor to assess their position and inform them of various options to avoid foreclosure. Id. Morever, "[i]f section 2923.5 is not complied with, then there is no valid notice of default, and without a valid notice of default, a foreclosure sale cannot proceed." Id. at *7. Nonetheless, once the foreclosure sale happens, the postponement remedy disappears. Id. at *14 ("the only remedy provided is a postponement of sale before it happens" (emphasis in original)). Failure to comply is does not cause any cloud on the property's title. Id. Finally, although no express private right of action is written into the text of section 2923.5, one California Court of Appeal has recently held that a private right of action exists to enforce the provision. Id. at *8.

In this case, Plaintiff argues that the Defendants did not comply with section 2923.5 for several reasons. First, Plaintiff claims that Wells Fargo did not contact the Plaintiff before the notice of default. (FAC ¶ 66; see also id. ¶¶ 70--72.) Second, Plaintiff claims that the Defendants violated this section because "[t]he required declaration is not signed under penalty of perjury and there is no evidence on the face of the declaration that the declarant had any personal knowledge of the averments contained therein." (Id. ¶ 67; see also id. ¶¶ 73--78.) Because of these alleged deficiencies, Plaintiff believes that "the non-judicial foreclosure, pursuant to the [Notice of Default] and [Notice of Sale], is void." (Id. ¶ 69; see also id. ¶¶ 72 & 78.)

Plaintiff's argument under section 2923.5, however, does not afford him any remedy at this late date. First, the 2923.5 notice need not be signed under penalty of perjury. Mabry, 2010 WL 2180530, at *13 ("The idea that this 'declaration' must be made under oath must be rejected."). As the Mabry court aptly noted, nothing in either the colloquial or legal definitions of a "declaration" require it to be made under oath. Id. Further, the absence of the words "penalty of perjury" in this section and the presence of that phrase in other mortgage-related statutes indicates that the legislature had not intention of imposing such a requirement. Id. Finally, the statute on which Plaintiff relies only applies where the statute requires the evidence of a sworn declaration, not simply a declaration. See Cal. Code. Civ. P. § 2015.5. And, as noted above, section 2923.5 does not require a sworn declaration. Thus, the absence of a signature under penalty of perjury does not make the notice deficient.

Plaintiff's second argument is also foreclosed by Mabry. That court clearly indicated that (1) the notice can "track the language of the statute" and (2) the person signing the notice need not have been the same person who performed the options listed in section 2923.5. Mabry, 2010 WL 2180530, at *14. Again, ...

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