The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge
This matter is before the court on defendant First Horizon Home Loans' ("Horizon")*fn1 motion to dismiss plaintiffs Eric and Lynda Hawkins'("plaintiffs") complaint pursuant to Federal Rule of Civil Procedure ("FRCP") 12(b)(6).*fn2 Plaintiffs oppose the motion. For the reasons set forth below,*fn3 Horizon's motion is GRANTED.
Plaintiffs reside at 8256 Waterwell Way in Tracy, California (the "Property"). (Compl., filed July 16, 2010 [Docket # 1], ¶ 1.) In or around June 2006, plaintiffs contacted defendant James Jabout ("Jabout"), a friend of theirs and a mortgage broker employed by defendant California Home and Mortgage ("CH&M"), about obtaining a loan (the "Subject Loan" or "Construction Loan") to fund construction of a new home on their Property. (Id. ¶¶ 6, 16.) Plaintiffs claim the Construction Loan would convert to a "permanent mortgage loan" when construction on the Property was finished. (Id. ¶ 16.) Plaintiffs also claim that no interest would be charged during the construction period, i.e., interest charges would begin only after the loan converted into a permanent loan. (Id. ¶ 32; Decl. of K. Brian Matlock in Support of Compl., filed July 16, 2010 ["Matlock Decl."], Ex. D.)
According to plaintiffs, Jabout initiated the loan application process without requesting documentation of income or other financial information. (Compl. ¶ 18.) They contend that Jabout, his employer CH&M, and Loanguy.com fabricated and inflated their financial information on the final loan application. (Id. ¶ 20.) Further, plaintiffs contend that Horizon is liable for the alleged fabrication because Horizon is in an agency relationship with all other defendants which ties them either in this single incident or in an overarching fraudulent course of conduct. (Id. ¶ 9.)
Finally, plaintiffs contend that during the loan process Horizon charged plaintiffs "numerous [j]unk fees" and failed to make certain mandatory disclosures. (Id. ¶¶ 75, 82, 89.) Specifically, as to the non-disclosures, plaintiffs allege that defendants failed to (1) "provide the required disclosures prior to consummation of the transactions"; (2) "submit to [p]laintiffs a consumer handbook on adjustable rate mortgages"; (3) "contain the statement 'You are not required to complete this agreement merely because you have received these disclosures or signed a loan application' on the Good Faith Estimate"; (4) "fully explain the terms of the Subject Loan and the second loan to [p]laintiffs in a meaningful way"; (5) "submit the required Good Faith Estimates of the disclosures within three days of [p]laintiffs' initial application" (6) "submit the Special Information Booklet to plaintiffs" (7) "disclose the current credit score of the consumer or the most recent score of the consumer that was previously calculated by the credit reporting agency for a purpose related to the extension of credit"; (8) "disclose a range of possible credit scores under the model used"; (9) "disclose all of the key factors that adversely affected the credit score of the consumer in the model used"; (10) "disclose the date on which the credit score was created"; and (11) "disclose the name of the person or entity that provided the credit score or credit file upon which the credit score was created" in violation of the Fair and Accurate Credit Transaction Act ("FACTA"), the Real Estate Settlement and Procedures Act ("RESPA"), and the Truth in Lending Act ("TILA"). (Id. ¶¶ 73-92.)
At the end of the loan application process, plaintiffs state they received two loans: (1) the Construction Loan from Horizon memorialized by a Residential Construction Loan Agreement and other documents; and (2) a second loan from Horizon memorialized by a Deed of Trust and other documents. (Id. ¶¶ 26, 35; Matlock Decl., Exs. B-G.)
After receiving the loans, plaintiffs began building a home on the Property, drawing on the Subject Loan during the construction process. (Compl. ¶ 40.) They contend that during this time interest accrued notwithstanding the parties' agreement to the contrary. (Id.) Construction was completed in August 2007. (Id. ¶ 41; Matlock Decl., Ex. H.) At this time, plaintiffs believed the Construction Loan would become a "permanent loan." (Compl. ¶¶ 41-42.) However, plaintiffs allege that Horizon refused to convert the Construction Loan. (Id. ¶ 43.)
Thereafter, plaintiffs allege that they continued making payments on the Subject Loan until their default in April 2008.
(Id. ¶ 44.) Following default, plaintiffs requested and obtained loan modification agreements from Horizon effective January 1, 2009. (Id. ¶ 45; Matlock Decl., Ex. J.)
Approximately seven months later, in July 2009, plaintiffs filed for bankruptcy. (Compl. ¶ 49.) After the conclusion of plaintiffs' bankruptcy proceeding, Horizon instituted foreclosure proceedings. (Id. ¶ 51; Matlock Decl., Ex. T.) Horizon filed a first Notice of Default and Election to Sell in January 2010, and an amended one in April 2010. (Compl. ¶¶ 53, 54; Matlock Decl., Exs. L, U, V.) No foreclosure sale has been noticed or scheduled. Plaintiffs filed this lawsuit on July 16, 2010.*fn4
Plaintiffs bring forth sixteen causes of action: (1) violations of the Truth in Lending Act, 15 U.S.C., sections 1601 et seq.; (2) violations of the Real Estate Settlement and Procedures Act, 12 U.S.C., sections 2601 et seq.; (3) violations of the Fair and Accurate Credit Transaction Act, 15 U.S.C., sections 1681 et seq.; (4) common law intentional misrepresentation; (5) statutory fraud; (6) breach of written contract; (7) breach of fiduciary duty; (8) constructive fraud; (9) negligent lending; (10) unjust enrichment; (11) violations of the California Unfair Competition Law, California Business & Professions Code Sections 17200 et seq. ("UCL"); (12) contractual breach of good faith and fair dealing; (13) predatory lending practices; (14) violation of California Civil Code, section 1916.7(c) ("Section 1916.7"); (15) violation of California Civil COde, section 2923.6 ("Section 2923.6"); and (16) fraudulent inducement to contract.
Under Federal Rule of Civil Procedure 8(a), a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." See Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Under notice pleading in federal court, the complaint must "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). "This simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512 (2002).
On a motion to dismiss, the factual allegations of the complaint must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322 (1972). The court is bound to give plaintiff the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the complaint. Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963). A plaintiff need not allege "'specific facts' beyond those necessary to state his claim and the grounds showing entitlement to relief." Twombly, 550 U.S. at 570. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1949.
Nevertheless, the court "need not assume the truth of legal conclusions cast in the form of factual allegations." United States ex rel. Chunie v. Ringrose, 788 F.2d 638, 643 n.2 (9th Cir. 1986). While Rule 8(a) does not require detailed factual allegations, "it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation." Iqbal, 129 S.Ct. at 1949. A pleading is insufficient if it offers mere "labels and conclusions" or "a formulaic recitation of the elements of a cause of action." Twombly, 550 U.S. at 555; Iqbal, 129 S.Ct. at 1950 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."). Moreover, it is inappropriate to assume that the plaintiff "can prove facts which it has not alleged or that the defendants have violated the . . . laws in ways that have not been alleged." Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).
Ultimately, the court may not dismiss a complaint in which the plaintiff has alleged "enough facts to state a claim to relief that is plausible on its face." Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 570). Only where a plaintiff has failed to "nudge [his or her] claims across the line from conceivable to plausible," is the complaint properly dismissed. Id. at 1952. While the plausibility requirement is not akin to a probability requirement, it demands more than "a sheer possibility that a defendant has acted unlawfully." Id. at 1949. This plausibility inquiry is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950.
In ruling upon a motion to dismiss, the court may consider only the complaint, any exhibits thereto, and matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. See Mir v. Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988); Isuzu Motors Ltd. v. Consumers Union of U.S., Inc., 12 F. Supp. 2d 1035, 1042 (C.D. Cal. 1998).
Plaintiffs' first cause of action asserts both a rescission and damage claim for alleged violations of the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq. (Compl. ¶ 78.) Specifically, plaintiffs allege that defendants (1) "fail[ed] to provide the required disclosures prior to consummation of the transactions"; (2) "fail[ed] to submit to [p]laintiffs a consumer handbook on adjustable rate mortgages"; (3) "fail[ed] to contain the statement 'You are not required to complete this agreement merely because you have received these disclosures or signed a loan application' on the Good Faith Estimate"; (4) "fail[ed] to fully explain the terms of the Subject Loan and the second loan to [p]laintiffs in a meaningful way"; (5) "fail[ed] to submit the required Good Faith Estimates of the disclosures within three days of [p]laintiffs' initial application"; and (6) engaged in "predatory lending" by "extending credit to [p]laintiffs. . . without regard to [p]laintiffs' repayment ability." (Compl. ¶ 75; Pls.'s Opp.'n ["Opp.'n"], filed Oct. 20, 2010 [Docket #18], 3-4.)
Defendant Horizon argues that plaintiffs' TILA claims are time barred. (Horizon's Motion to Dismiss ["MTD"], filed October 8, 2010 [Docket #15], 6-9). Plaintiffs respond that the statutory period has not expired based on equitable tolling and/or the continuing violation doctrine. (Opp.'n at 3-4.)
Rescission claims under TILA "shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first." 15 U.S.C. § 1635(f).
Further, equitable tolling does not apply to rescission under this provision of TILA. If the borrower files his or her suit over three years from the date of a loan's consummation, a court is powerless to grant rescission. Miguel v. Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir 2002) ("[S]section 1635(f) represents an 'absolute limitation on rescission actions' which bars any claims filed more than three years after the consummation of the transaction." (quoting King v. California, 784 F.2d 910, 913 (9th Cir. 1986)); accord Beach v. Ocwen Fed. Bank, 523 U.S. 410, 412 (1998) ("[Section] 1635(f) completely extinguishes the right of rescission at the end of the 3-year period."). If a borrower exercises her right to rescind within the three-year limitation period, such action only entitles the borrower to damages, not rescission. Cazares v. Household Fin. Corp., No. CV 04-6887 DSF, 2005 U.S. Dist. LEXIS 39222, at *24-25 (C.D. Cal. 2005) (citing 15 U.S.C. § 1640(a); Belini v. Wash. Mut. Bank, FA, 412 F.3d 17 (1st Cir. 2005)).
In this case, plaintiffs allege they consummated the Subject Loan on or about September 11, 2006. (Compl. ¶ 26.) Plaintiffs did not bring the instant action until July 16, 2010; accordingly, more than three years has passed since the alleged TILA violations. 15 U.S.C. § 1640(e). As such, Horizon's motion to dismiss plaintiffs' recision claim under TILA is GRANTED without leave to amend.
TILA provides that a plaintiff can bring an action to recover damages "within one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e). As stated above, plaintiffs bring this action approximately four years after consummation of the loan; accordingly, their TILA claims are time-barred.
Plaintiffs argue that their claims are timely because defendants engaged in "predatory lending," which they assert is a continuing violation of TILA. However, the Ninth Circuit has expressly rejected the continuing violation theory as applied to claims for damages brought under TILA. King, 784 F.2d at 914. In King, the Ninth Circuit stated that the theory is "unrealistically open ended" and "exposes the lender to a prolonged and unforeseeable liability that Congress did not ...