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Rafael Valtierra and Ofelia Valtierra v. Wells Fargo Bank

February 8, 2011



Defendant Wells Fargo has filed a motion to dismiss Plaintiffs' claims. Plaintiffs oppose the motion. Based on the analysis contained herein, the motion to dismiss is granted with leave to amend. Plaintiffs are also put on notice that there is no proof that Defendant Cal-Western has been served.

I. History*fn1

On June 21, 2006, Plaintiffs Rafael and Ofelia Valtierra ("Plaintiffs"), obtained a $488,000 mortgage from World Savings Bank, FSB ("World Savings") which through a number of corporate changes has become Defendant Wells Fargo Bank, N.A. ("Wells Fargo"). The loan was secured by a Deed of Trust against 1921 Katherine Court, Turlock, CA, which was recorded on July 5, 2006. The Deed of Trust named Plaintiff and Ofelia Valtierra as trustors, World Savings as beneficiary, and third party Golden West Savings Association Services Company as trustee. Plaintiff fell behind on payments, and a Notice of Default was recorded on August 3, 2009 by Defendant Cal-Western Reconveyance Corporation ("Cal-Western"). A Notice of Trustee Sale was recorded on November 5, 2009 setting a public auction for November 24, 2009; this document named Cal-Western as the trustee. The sale took place on March 8, 2010. Wells Fargo was the high bidder at $327,930.00; the outstanding amount Plaintiff owed on the mortgage had ballooned to $559,109.93. A Trustee's Deed upon Sale was recorded on March 16, 2010, in which Cal-Western conveyed the property to Wells Fargo. At an unspecified date, Wells Fargo sent Plaintiff written notice of a program whereby Plaintiff had until April 30, 2010 to conduct a short sale. It is unclear what communications occurred between the parties concerning this program prior to the trustee sale.

The origin of this case is not altogether clear. Wells Fargo filed a suit against Plaintiffs on April 2, 2010 in Stanislaus County Superior Court for unlawful detainer of the property ("State Case"). Summary judgment was granted in favor of Wells Fargo on June 24, 2010. Plaintiffs received an order to stay eviction proceedings on July 14, 2010, but were ultimately evicted on August 17, 2010. Plaintiffs filed a notice of removal with the Stanislaus County Superior Court on August 11, 2010. However, no notice of removal was filed in federal district court. Instead, Plaintiffs (proceeding pro se) filed the present complaint in federal district court. Plaintiffs allege that they contacted Wells Fargo in November 2008 to formally dispute the mortgage, but that Wells Fargo and Cal-Western has continued to try to collect on the debt notwithstanding the dispute. The complaint alleges violations of the Fair Debt Collection Practices Act ("FDCPA") for seeking to collect on a debt without first verifying or validating it and violations of the Fair Credit Reporting Act ("FCRA") for passing erroneous information to credit reporting agencies. Doc. 1. The complaint does not directly address Wells Fargo's unlawful detainer claim. Nonetheless, Plaintiffs filed a "notice of contempt of federal jurisdiction" and a motion for a temporary restraining order. Docs. 4 and 5. Both dealt with Wells Fargo's unlawful detainer claim and sought to reverse the eviction. The request was denied. Doc. 11. Wells Fargo has filed a motion to dismiss. Doc. 9. Plaintiffs have opposed the motion. Doc. 13. The matter was taken under submission without oral argument. There has been no appearance by Cal-Western in this case.

In a related case, Rafael Valtierra (represented by counsel) filed suit against Wells Fargo on April 13, 2010 in Stanislaus County Superior Court. Wells Fargo removed the case to federal district court based on diversity jurisdiction on May 14, 2010; it is Civil Case No. 10-0849. The operative complaint lists seven causes of action: 1) general violations of Cal. Bus. & Prof. Code §17200, 2) fraud by representing that Rafael Valtierra had until April 30, 2010 to conduct a short sale, 3) to set aside a trustee's deed, 4) wrongful foreclosure, 5) violation of the Truth In Lending Act, 6) fraud by initially overestimating the value of the property, and 7) violation of Cal Bus. & Prof. Code §17200 by initially overestimating the value of the property.

II. Legal Standards

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "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, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)....a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007), citations omitted. "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss. Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where 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 shown that the pleader is entitled to relief." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009), citations omitted. The court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The court must also assume that "general allegations embrace those specific facts that are necessary to support the claim." Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 889 (1990), citing Conley v. Gibson, 355 U.S. 41, 47 (1957), overruled on other grounds at 127 S. Ct. 1955, 1969. Thus, the determinative question is whether there is any set of "facts that could be proved consistent with the allegations of the complaint" that would entitle plaintiff to some relief. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). At the other bound, courts will not assume that plaintiffs "can prove facts which [they have] not alleged, or that the defendants have violated...laws in ways that have not been alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983).

In deciding whether to dismiss a claim under Fed. Rule Civ. Proc. 12(b)(6), the Court is generally limited to reviewing only the complaint. "There are, however, two exceptions....First, a court may consider material which is properly submitted as part of the complaint on a motion to dismiss...If the documents are not physically attached to the complaint, they may be considered if the documents' authenticity is not contested and the plaintiff's complaint necessarily relies on them. Second, under Fed. Rule Evid. 201, a court may take judicial notice of matters of public record." Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001), citations omitted. The Ninth Circuit later gave a separate definition of "the 'incorporation by reference' doctrine, which permits us to take into account documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the plaintiff's pleading." Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005), citations omitted. "[A] court may not look beyond the complaint to a plaintiff's moving papers, such as a memorandum in opposition to a defendant's motion to dismiss. Facts raised for the first time in opposition papers should be considered by the court in determining whether to grant leave to amend or to dismiss the complaint with or without prejudice." Broam v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir. 2003), citations omitted.

If a Fed. Rule Civ. Proc. 12(b)(6) motion to dismiss is granted, claims may be dismissed with or without prejudice, and with or without leave to amend. "[A] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc), quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995). In other words, leave to amend need not be granted when amendment would be futile. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).

III. Discussion

A. Res Judicata

Wells Fargo argues that the FDCPA and FCRA claims are barred under the doctrine of res judicata, specifically "title and possession to the subject property were already litigated between these parties in two state court actions: (1) the action filed by plaintiffs in April [2010]; and (2) the unlawful detainer action filed by [Wells Fargo]." Doc. 9, Brief, at 4:6-8. The preclusive effect of a state court judgment is determined by that state's rules of preclusion. Migra v. Warren City School Dist. Bd. of Education, 465 U.S. 75, 81 (1984). Under California law, "a party will be collaterally estopped from relitigating an issue only if (1) the issue decided in a prior adjudication is identical with that presented in the action in question; and (2) there was a final judgment on the merits; and (3) the party against whom the plea is asserted was a party or in privity with a party to the prior adjudication." Clemmer v. Hartford Ins. Co., 22 Cal. 3d 865, 874 (Cal. 1978), citations omitted.

Neither of the cases Wells Fargo refers to satisfies all three requirements. The "action filed by plaintiff in April [2010]" is ongoing as the related Civil Case No. 10-0849; there has been no final judgment on the merits. The unlawful detainer action did not deal with the identical issues at hand. Wells Fargo cites to a California Supreme Court case for the proposition that a "'full and fair' litigation of an affirmative defense -- even one not ordinarily cognizable in unlawful detainer, if it is raised without objection, and if a fair opportunity to litigate is provided -- will result in a judgment conclusive upon issues material to that defense. In a summary proceeding such circumstances are uncommon." Vella v. Hudgins, 20 Cal. 3d 251, 256-57 (Cal. 1977). The ultimate disposition of the opinion was that res judicata did not apply as there was only a limited examination of the affirmative defense: "Matters affecting the validity of the trust deed or primary obligation itself, or other basic defects in the plaintiff's title, are neither properly raised in this summary proceeding for possession, nor are they concluded by the judgment." Vella v. Hudgins, 20 Cal. 3d 251, 257 (Cal. 1977), quoting Cheney v. Trauzettel, 9 Cal.2d 158, 160 (Cal. 1937). In the present case, Wells Fargo has provided a brief filed on July 2, 2010, by Plaintiffs' attorney in Civil Case No. 10-0849 that sought to consolidate the State Case with Civil Case No. 10-0849 on the basis that, "The core legal question in both actions involves fraud in [Wells Fargo's] acquisition of the title to Plaintiff's property." Doc. 10, Ex. O, at 4:17-18. Wells Fargo does not actually provide the court's ruling on the ...

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