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Gary L. Foster v. Bankers

January 19, 2011



Plaintiff Gary L. Foster brought this action against defendants SCME Mortgage Bankers, Inc. ("SCME"), Clever Key Financial, LLC, Clever Key Financial, Inc., West Coast Mortgage, Homecomings Financial, LLC f/k/a Homecomings Financial Network, Inc. ("Homecomings"), Mortgage Electronic Registration Systems Inc. ("MERS"), Deutsche Bank Trust Co. Americas, Aurora Loan Services LLC ("Aurora"), Cal-Western Reconveyance Corporation, Frederick Winston Williams II, and Deborah Diaz, arising out of defendants' allegedly wrongful conduct relating to a loan agreement. Presently before the court are Homecomings' motion to dismiss plaintiff's First Amended Complaint ("FAC") pursuant to Federal Rule of Civil Procedure 12(b)(6) and Aurora and MERS's motion to dismiss and to strike portions of the FAC pursuant to Rule 12(f).

I. Factual and Procedural Background On April 1, 2006, plaintiff entered into an Option

Adjustable Rate Note loan agreement for $496,000.00 with SCME to refinance an existing loan. (FAC ¶¶ 22, 31.) The loan was secured by plaintiff's residence. (Id. ¶ 22.) Plaintiff alleges that he did not receive copies of the loan documents from SCME at closing or any time thereafter. (Id. ¶ 23.) He alleges that he was not provided with a meaningful opportunity to review the documents, and that the documents contained blank spaces when he signed them. (Id. ¶¶ 32-33.) After the closing, he allegedly tried to ask Diaz, the notary present at the closing, for copies of the documents, but he could not locate her. (Id. ¶¶ 33-34.) He also attempted to obtain copies from Diaz's employer and from an escrow officer, but did not succeed. (Id. ¶¶ 35-36.) Plaintiff alleges that he finally received a copy of the loan documents from Aurora, the loan servicer, in December of 2009. (Id. ¶ 23.) He alleges numerous irregularities in the loan documents, including falsified information on the loan application. (Id. ¶¶ 27-29.)

On July 9, 2009, a Notice of Default on plaintiff's property was recorded in the San Joaquin County Recorder's Office. (Homecomings' Req. for Judicial Notice in Supp. of Reply in Supp. of Mot. to Dismiss Pl.'s FAC (Docket No. 129) Ex. B.)

On January 15, 2010, a Notice of Trustee's Sale was recorded. (Id. Ex. C.) On July 29, 2010, a Trustee's Deed upon Sale for the property was recorded. (Id. Ex. E.) Plaintiff has since been evicted. (Pl.'s Opp'n to Defs.' Mots. to Dismiss (Docket No. 119) at 1:13-14.)

As relevant to these motions, plaintiff's FAC (Docket No. 50 Ex. 1) alleges claims against Homecomings for violations of the Truth in Lending Act ("TILA"), against Aurora for violations of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code §§ 17200-17210, and against Homecomings and MERS for wrongful foreclosure and quiet title. Aurora, MERS, and Homecomings now move to dismiss the claims against them under Rule 12(b)(6) and Aurora and MERS also move to strike plaintiff's claims for punitive damages.*fn1

II. Discussion

On a motion to dismiss, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). "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.'" Ashcroft v. Iqbal, --- U.S. ----, ----, 129 S. Ct. 1937, 1949 (2009) (quoting 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." Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 556-57) (internal quotation mark 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(b).

The parties have requested that the court take notice of the Deed of Trust, Notice of Default, Notice of Trustee's Sale, Assignment of Deed of Trust, and Trustee's Deed upon Sale for the subject property. The court will take judicial notice of these documents, since they are matters of public record whose accuracy cannot be questioned. See Lee v. City of L.A., 250 F.3d 668, 689 (9th Cir. 2001). The parties also request that the court take judicial notice of the Truth in Lending Disclosure Statement and the Adjustable Rate Mortgage Program Disclosure executed on April 1, 2006, letters between plaintiff and Aurora, and documents related to the federal stock charter for Lehman Brothers Bank. These documents are not judicially noticeable, and the court declines to consider them for purposes of this motion to dismiss.

A. TILA Claim against Homecomings Plaintiff brings a claim for damages under TILA, alleging that the parties failed to make required disclosures related to his loan. (FAC ¶¶ 42-58.) While Homecomings contends that it was a loan servicer, not an assignee, plaintiff alleges that Homecomings was an assignee of the deed of trust. (Id. ¶ 12.) An assignee can only be liable for the initial creditor's failure to give proper TILA disclosures if the violation is apparent on the face of the disclosure statement. 15 U.S.C. § 1641(e)(1). A violation is apparent on the face of the disclosure statement if "the disclosure can be determined to be incomplete or inaccurate by a comparison among the disclosure statement, any itemization of the amount financed, the note, or any other disclosure of disbursement" or if the statement does not use the terms and format required by TILA. Id. § 1651(e)(2); see White v. Homefield Fin., Inc., 545 F. Supp. 2d 1159, 1168 (W.D. Wash. 2008) ("Although the Ninth Circuit does not appear to have addressed this question, TILA's assignee liability provision has been interpreted by other courts as meaning that a TILA claim may be asserted against an assignee only for 'violations that a reasonable person can spot on the face of the disclosure statement or other assigned documents.'") (quoting Taylor v. Quality Hyundai, Inc., 150 F.3d 689, 694 (7th Cir. 1998)); see also Romero v. Countrywide Bank, N.A., --- F. Supp. 2d ----, ----, 2010 WL 2985539, at *9 (N.D. Cal. July 27, 2010).

The alleged violations of TILA complained of by plaintiff are not the sort that could be apparent on the face of the disclosure statement. Plaintiff alleges that the statement provided incorrect information regarding the annual percentage rate ("APR") and the interest rate on which the payment schedule was based, and failed to disclose the facts that the initial rate was discounted and that negative amortization was certain to occur. (FAC ¶¶ 46-58.) Plaintiff does not explain how any of these alleged TILA violations could have been discovered from the face of the disclosure statement or other documents, and the court cannot conceive of any way by which Homecomings could have discovered the violations on the face of the documents.

See Romero, 2010 WL 2985539, at *5-10 (finding that assignee could not discover the same four alleged TILA violations on the face of the documents). Homecomings could not have known from looking at the documents that the disclosed APR and payment schedule interest rate were inaccurate. Without looking beyond the documents, it would not have realized that the initial rate was discounted or that negative amortization was certain to occur. Homecomings, as an assignee, cannot be held liable for the ...

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