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Carter v. GMAC Mortgage


November 23, 2010



Plaintiff Michael C. Carter brought this action against defendants GMAC Mortgage, LLC ("GMAC") and First California Mortgage Corporation ("First California") alleging various federal and state claims arising out of plaintiff's mortgage transaction. GMAC and First California now move to dismiss plaintiff's Second Amended Complaint ("SAC") pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.

I. Factual and Procedural Background

In December of 2005, plaintiff obtained a loan from First California to purchase his residence at 1664 Baroness Way, Roseville, Placer County, California. (SAC ¶¶ 6, 52-53 (Docket No. 31).) On December 12, 2005, a Deed of Trust was recorded in Placer County Recorder's Office. (GMAC's Req. for Judicial Notice Ex. 1 (Docket No. 35).) Kathy Robinson of Financial Company of America, an alleged agent of First California, allegedly misrepresented to plaintiff that the loan had the best interest rate available on the market, the loan had a fixed interest rate, and that the appraisal value of the property was correct. (SAC ¶¶ 51(1), (3), (7)-(8).) Robinson's other alleged misrepresentations include that the loan application correctly stated plaintiff's income, the loan application did not include plaintiff's wife's income because she had terminal cancer, the fee charged for the loan was consistent with fees charged for the best loan available on the market, plaintiff had the ability to repay the loan, plaintiff was given at time of closing all the legally required disclosures, and that "at the time of the signing of all the loan documents it was not necessary for plaintiff to read all the documents since they were in order and did not need to be read but only signed." (Id. ¶¶ 51(2), (4)-(6), (9), (11).)

First California allegedly negligently falsified plaintiff's income, appraisal value of the property, and other information on his loan application. (Id. ¶ 38.) This was done to "induce" plaintiff to enter the loan transaction. (Id. ¶ 40.)

Plaintiff further alleges that plaintiff did not receive the required Notice of Right to Cancel pursuant to the Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1601-1667f, at the time of the loan origination. (SAC ¶ 28.) Plaintiff's signature on the Notice of Right to Cancel in First California's possession is allegedly forged. (Id.)

Plaintiff alleges that GMAC is liable because GMAC "assumed or was assigned" the loan. (Id. ¶¶ 8, 13.) Also, GMAC had an "agreement" with First California to accept loans that included "false information and pre-payment penalties borrowers were not aware of, for the purpose of closing a higher volume of loans for their financial gain." (Id. ¶ 14.)

Plaintiff filed the initial complaint in California Superior Court in Placer County on February 18, 2010. (Docket No. 1.) With GMAC's consent, First California removed the case to this court on March 18, 2010. (Id.) Plaintiff asserts claims for a TILA violation, negligence, fraud, and violations of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200-17210. The court granted defendants' motions to dismiss the initial complaint in its entirety on May 12, 2010. (Docket No. 17.) The court granted First California's motion to dismiss the First Amended Complaint on August 6, 2010. (Docket No. 29.) Both defendants now move to dismiss the SAC pursuant to Federal Rule of Civil Procedure 12(b)(6).

II. Discussion

To survive a motion to dismiss, a plaintiff must plead "only 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). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," and where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility." Ashcroft v. Iqbal, ---U.S. ----, 129 S.Ct. 1937, 1949 (2009) (internal quotation marks omitted). In deciding whether a plaintiff has stated a claim, the court must assume that the plaintiff's allegations are true and draw all reasonable inferences in the plaintiff's favor. Usher v. City of L.A., 828 F.2d 556, 561 (9th Cir. 1987). However, the court is not required to accept as true "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks omitted).

In general a court may not consider items outside the pleadings upon deciding a motion to dismiss, but may consider items of which it can take judicial notice. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). A court may take judicial notice of facts "not subject to reasonable dispute" because they are either "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201.

GMAC requests the court take notice of plaintiff's Deed of Trust, publically recorded in the Placer County Recorder's Office. The court will take judicial notice of this document, since it is a matter of public record whose accuracy cannot be questioned. See Lee v. City of L.A., 250 F.3d 668, 689 (9th Cir. 2001).

A. TILA Claim

The statute of limitations for a TILA damages claim*fn1 is one year from the occurrence of a violation. 15 U.S.C. § 1640(e). The "limitations period in [s]section 1640(e) runs from the date of consummation of the transaction." King v. State of Cal., 784 F.2d 910, 915 (9th Cir. 1995). Here, the alleged failure to provide plaintiff with the Notice of Right to Cancel occurred in December of 2005 and plaintiff filed the initial complaint in February of 2010. Over one year has run, but plaintiff argues that the statute of limitations should be tolled on his TILA claim. (Docket No. 40 at 2:17-3:25; Docket No. 43 at 2:3-4:12.)

"[T]he doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA action." King v. State of Cal., 784 F.2d at 915. The applicability of the equitable tolling doctrine often depends on matters outside the pleadings and thus "is not generally amenable to resolution on a Rule 12(b)(6) motion." Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1206 (9th Cir. 1995). Nonetheless, when a plaintiff fails to allege facts suggesting that he did not have a reasonable opportunity to discover the violation, dismissal may be appropriate. See Meyer v. Ameriquest Mortg. Co., 342 F.3d 899, 902-03 (9th Cir. 2003); Hubbard v. Fidelity Fed. Bank, 91 F.3d 75, 79 (9th Cir. 1996).

Here, plaintiff alleges that his signature was forged on the Notice of Right to Cancel in First California's possession. (SAC ¶ 31.) Even if the Notice of Right to Cancel in First California's possession contains a forged signature, this allegation only shows that First California failed to provide a Notice of Right to Cancel, not that plaintiff did not have the reasonable opportunity to discover the nondisclosure within the one-year statute of limitations. Plaintiff also alleges that he was not "aware of his statutory rights under TILA" because the Acknowledgment of Receipt that plaintiff signed did not specifically mention the Notice of Right to Cancel. Id.

The court has found no authority for the proposition that the statute of limitations is tolled on a TILA claim when the defendant failed to inform the plaintiff of his right to a disclosure. To the contrary, courts have held that equitable tolling is inappropriate when nothing prevented the plaintiff from comparing the disclosures made and the disclosures required under TILA. In Hubbard v. Fidelity Federal Bank, 91 F.3d 75, 79 (1996), the Ninth Circuit rejected an equitable tolling argument and explained that "nothing prevented [the plaintiff] from comparing the loan contract, [the creditor's] initial disclosures, and TILA's statutory and regulatory requirements." Id.; see also Hughes v. Equity Plus Fin., No. 09cv2927, 2010 WL 2836828, at *7 (S.D. Cal. July 19, 2010) ("During the limitations period, nothing prevented Plaintiff from looking into whether [the creditor] made all of the required disclosures."); Curtis v. Option One Mortg. Corp., No. 109-cv-1608 AWI SMS, 2010 WL 599816, at *8 (E.D. Cal. Feb. 18, 2010) ("The only explanation that Plaintiff provides to invoke equitable tolling is that Plaintiff did not know about the TILA and did not discover the violations until the loan was reviewed by a loan expert. Plaintiff has not made any arguments concerning her own responsibilities to seek out the necessary disclosures."). In other words, failure to disclose does not itself toll the statute of limitations. Garcia v. Wachovia Mortg. Corp., 676 F. Supp. 2d 895, 906 (S.D. Cal. 2009). As the Garcia court explained the rationale: "This is sensible, because it is in line with the generally applicable principles of equitable tolling, and because a contrary rule would render the one-year statute of limitations meaningless, as it would be tolled whenever there were improper disclosures." Id.

Plaintiff has offered no factual allegations to show that he was unable to compare what First California disclosed with the required disclosures under TILA. As the court explained in Cervantes v. Countrywide Home Loans, Inc., No. CV 09-517, 2009 WL 3157160, at *4 (D. Ariz. Sept. 24, 2009), factual allegations are especially important when a TILA violation is "self-apparent at the consummation of the transaction--e.g., not being provided a notice of one's right to rescind the transaction at the time of closing." Id.; see also Meyer v. Ameriquest Mortg. Co., 342 F.3d 899, 902-03 (9th Cir. 2003) (rejecting argument for equitable tolling of the TILA claim because plaintiff was in full possession of all loan documents and did not allege any actions that would have prevented discovery of the alleged TILA violations). Accordingly, because plaintiff has not alleged sufficient facts to toll the statute of limitations, the court will grant defendants' motions to dismiss the TILA claim.

While the court should freely give leave to amend when justice so requires, Fed. R. Civ. P. 15(a)(2), the court may deny leave to amend if the amendment would be futile or subject to dismissal. Gadda v. State Bar of Cal., 511 F.3d 933, 939 (9th Cir. 2007); Saul v. United States, 928 F.2d 829, 843 (9th Cir. 1991). Here, the court has twice dismissed plaintiff's TILA damages claim, first in the initial Complaint and then in the First Amended Complaint, for failure to allege sufficient facts to toll the statute of limitations. (See May 12, 2010, Order at 6:12-7:2 (Docket No. 17); August 6, 2010, Order at 4:18-5:19 (Docket No. 29).)

Plaintiff has been given three chances to allege facts sufficient to show that he is entitled to equitable tolling on his TILA claim, and he has been unable to do so. After three attempts, it is clear to the court that further amendments to the TILA claim would be futile. See Sanchez v. Greenpoint Mortg. Funding, Inc., No. 09 CV 2005, at *3 (S.D. Cal. May 10, 2010) (dismissing a TILA damages claim based on the statute of limitations without leave to amend); Hilton v. Washington Mut. Bank, No. C 09-1191, 2010 WL 727247, at *6 (N.D. Cal. Mar. 1, 2010) (same). Accordingly, the court will not afford plaintiff a fourth opportunity to amend the TILA claim.

B. Remaining State Law Claims

A defendant may remove an action filed in state court to federal court if the federal court would have original subject matter jurisdiction over the action. 28 U.S.C. § 1441. Federal courts have original subject matter jurisdiction over "all civil actions arising under the Constitution, laws, or treaties of the United States." 28 U.S.C. § 1331. Federal courts also have "supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution." 28 U.S.C. § 1367(a).

"[J]urisdiction must be analyzed on the basis of the pleadings filed at the time of removal without reference to subsequent amendments . . . ." Chabner v. United of Omaha Life Ins. Co., 225 F.3d 1042, 1046 n.3 (9th Cir. 2000) (quoting Sparta Surgical Corp. v. Nat'l Ass'n of Sec. Dealers, 159 F.3d 1209, 1213 (9th Cir. 1998)) (internal quotation marks omitted). However, a district court "may decline to exercise supplemental jurisdiction . . . [if] the district court has dismissed all claims over which it has original jurisdiction." 28 U.S.C. § 1367(c); see also Acri v. Varian Assocs., Inc., 114 F.3d 999, 1001 n.3 (9th Cir. 1997) (en banc) (explaining that a district court may decide sua sponte to decline to exercise supplemental jurisdiction).

Judicial economy, fairness, convenience, and comity inform a court in deciding whether to decline to exercise supplemental jurisdiction. Acri, 114 F.3d at 1001. The Supreme Court has stated that "in the usual case in which all federal-law claims are eliminated before trial, the balance of factors to be considered under the pendent jurisdiction doctrine--judicial economy, convenience, fairness, and comity--will point toward declining to exercise jurisdiction over the remaining state-law claims." Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n.7 (1988).

Here, all of the federal claims are eliminated well in advance of trial. Comity weighs in favor of declining to exercise supplemental jurisdiction because the remaining claims in the SAC are state law claims. The state court is competent to hear the case and may have a better understanding of the relevant state law. This action is still in the early stages. The court has not held a Status (Pretrial Scheduling) Conference and the parties have not engaged in discovery. The state and federal fora are equally convenient for the parties, and there is no reason to doubt that the state court will provide an equally fair adjudication of the SAC. Accordingly, neither judicial economy, convenience nor fairness weigh in favor of exercising supplemental jurisdiction. For those reasons, the court will remand the remaining state law claims in this action to state court.

IT IS THEREFORE ORDERED that defendants' motions to dismiss be, and the same hereby are, GRANTED with respect to the TILA claim and DENIED as moot with respect to the state law claims.

IT IS FURTHER ORDERED that the remaining state law claims in this action be, and the same hereby are, REMANDED to Superior Court of the State of California, in and for the County of Placer.

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