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Manuel Ballard, Kap Ca, LLC As v. Chase Bank Usa

December 9, 2010


The opinion of the court was delivered by: M. James Lorenz United States District Court Judge


Defendants Chase Bank USA, N.A. and Chase Home Finance LLC move to dismiss the first amended complaint ("FAC") in its entirety. The motion has been fully briefed.*fn1 For the reasons set forth below, the motion to dismiss the FAC will be granted and plaintiffs will be given leave to amend the complaint.

1. Legal Standard

A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro v., 250 F.3d 729, 732 (9th Cir. 2001). Federal Rule of Civil Procedure 8(a) requires a complaint to contain "a short and plain statement of the claim showing that the pleader is entitled to relief . . . ." FED. R. CIV. P. 8(a). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotation marks, brackets and citations omitted).

In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe them in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions need not be taken as true merely because they are cast in the form of factual allegations. Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981). Similarly, "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998).

In determining the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond the complaint for additional facts, e.g., facts presented in plaintiff's memorandum in opposition to a defendant's motion to dismiss or other submissions. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003); Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998); see also 2 OORE'S FEDERAL PRACTICE, § 12.34[2] (Matthew Bender 3d ed.) ("The court may not . . . take into account additional facts asserted in a memorandum opposing the motion to dismiss, because such memoranda do not constitute pleadings under Rule 7(a).").

2. Background

Plaintiffs Manuel Ballard ("Ballard"), and KAP CA, LLC, the titleholder of the property at issue, brought this action on September 21, 2009, in the Superior Court for the State of California, County of San Diego. Defendants removed the action on April 15, 2010, on the basis of federal question jurisdiction. The FAC alleges causes of action for wrongful foreclosure, cancellation of trust deeds, quiet title, violation of California Civil Code 2943, violation of California Business and Professions Code 17200, breach of fiduciary duty, fraud in the inducement, and declaratory relief.

As set forth in the FAC, plaintiff Ballard entered into two loan transactions on April 27, 2007, which were secured by the deed of trust on the property. Plaintiff failed to make payments under the terms of the note and as a result of his defaults, foreclosure was initiated, and on May 12, 2009, a Notice of Default and Election to Sell Under the Deed of Trust was recorded. A notice of Trustee's Sale was recorded on August 17, 2009. Plaintiff Ballard, the borrower, conveyed title to the property to KAP CA, LLC under a Grant Deed that was recorded on July 21, 2009, and on August 7, 2009, tendered a short sale offer to $65,000 to defendant Chase Home Finance, the loan servicer. The short sale offer was denied. The foreclosure sale of the property occurred on April 7, 2010.

3. Wrongful Foreclosure, Cancellation of Trust Deeds, Quiet Title Defendants contend plaintiffs must tender the outstanding amount of debt in order to bring their first, second, and third causes of action for wrongful foreclosure, cancellation of the Trust Deeds, and quiet title, which challenge the foreclosure of the property. These causes of action are based on plaintiffs' contention that the notes and mortgages were split when the notes were assigned, leaving the debt unsecured.

Tender is required to maintain all three of these causes of action under California law. Anaya v. Advisors Lending Group, 2009 WL 2424037, *10 (E.D. Cal. Aug.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 WL 2136969, at *3 (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 WL 1813973, at * 11-12 (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 debt"). "It is settled in California that a mortgagor cannot quiet his title against the mortgagee without paying the debt secured." Shimpones v. Stickney, 219 Cal. 637, 649, 28 P.2d 673 (1934).

Plaintiffs contend, however, they have satisfied the tender requirement by tendering the reasonable value of the property, i.e., the alleged short sale offer plaintiffs made, which defendants declined to accept. This argument is without merit. See United States Cold Storage v. Great Western Savings & Loan Ass'n, 165 Cal. App.3d 1223 (1985) (explaining "the law is long-established that a trustor or his successor must tender the obligation in full as a prerequisite to challenge of the foreclosure sale.") (emphasis in original); American Mortg. Network, Inc. v. Shelton, 486 F.3d 815, 822 (4th Cir.2007) (holding "[t]he trial court properly denied rescission, given the appellants' inability to tender payment of the loan amount"). Because plaintiffs have not alleged or demonstrated that they have tendered or are capable of tendering the debt owed, the Court will dismiss without prejudice, plaintiffs' claims for wrongful foreclosure, cancellation of the trustee's deeds, and quiet title.

4. Violation of California Business and Profession Code § 17200 Section 17200 prohibits "any unlawful, unfair or fraudulent business act or practice."

AL. BUS. & PROF. CODE § 17200. Because Section 17200 is written in the disjunctive, it prohibits three separate types of unfair competition: (1) unlawful acts or practices, (2) unfair acts or practices, and (3) fraudulent acts or practices. Cel-Tech Commc'ns, Inc. v. Los Angeles Cellular Tel. Co., 83 Cal. Rptr.2d 548, 561 (Cal. 1999). By proscribing "unlawful" acts or practices, "Section 17200 'borrows' violations of other laws and treats them as unlawful practices independently actionable." Id. at 539-40.

Plaintiffs' fourth cause of action for violation of California Business and Professions Code § 17200 is brought against the loan servicer, Chase Home Finance, LLC; the fifth cause of action for violation of California Business and Professions Code § 172000 is brought against the lender, Chase Bank, USA, N.A.

a. Section 17200 Claim Against the Servicer, Chase Home Finance, LLC

1. California Civil Code § 2923.6

Plaintiffs' FAC makes reference to purported violations of California Civil Code § 2923.6 as the borrowed violation of law for § 17200 purposes. Defendants argue that § 2923.6 does not create a private right of action for borrowers. The Court agrees. Civil Code § 2923.6 provides:

(a) The Legislature finds and declares that any duty servicers may have to maximize net present value under their pooling and servicing agreements is owed to all parties in a loan pool, not to any particular parties, and that a servicer acts in the best interests of all parties if it agrees to or implements a loan modification or workout plan for which both of the following apply: (1) The loan is in payment default, or payment default is reasonably foreseeable. (2) Anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis. (b) It is the intent of the Legislature that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such a modification or plan is consistent with its contractual or other authority.

The permissive language of this provision does not provide a private cause of action. See Pantoja v. Countrywide Home Loans, Inc., 640 F. Supp.2d 1177, 1188 (N.D. Cal. 2009) ("The Court finds that the wording in Section (b) does not impose any duty on either defendant. Since Defendants do not owe Plaintiff a statutory duty under this section, Plaintiff has no cause of action."). Accordingly, because there is no private cause of action under Cal. Civil Code ยง 2923.6 and it cannot form the ...

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