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John Shirley, Individually and As Trustee of v. Wachovia Mortgage Fsb and Wells Fargo Bank N.A


March 9, 2011





Before the Court is a Motion to Dismiss filed by Defendant Wachovia Mortgage FSB ("Wachovia"). ECF No. 19. Plaintiffs John F. Shirley ("John") and Julie E. Shirley ("Julie") (collectively, "Plaintiffs") filed an Opposition, and Wachovia filed a Reply. ECF Nos. 22, 24. For the following reasons, the Court GRANTS IN PART 22 and DENIES IN PART Wachovia's Motion.


Plaintiffs filed this action in California state court on July 26, 2010, seeking rescission of a mortgage loan transaction due to 27 alleged violations of the Truth in Lending Act ("TILA") by Wachovia, as well as declaratory and injunctive relief. See ECF No. 1 ("Notice of Removal") Ex. A ("Initial Compl."). Wachovia 2 removed, and on October 27, 2010, Plaintiffs filed a First Amended ECF Nos. 12 ("FAC"), 18.

loan of $1.76 million to the John F. Shirley and Julie E. Shirley Complaint, which the Court accepted as the operative complaint. Plaintiffs allege that on February 29, 2008, Wachovia made a 2003 Trust ("the Trust"), secured by a deed of trust on Plaintiffs' 8 home. FAC ¶ 8. Plaintiffs allege that they sought to rescind this 9 loan on May 3, 2010, claiming Wachovia failed to make disclosures 10 required under TILA. Id. Plaintiffs contend that Wachovia refused to honor their demand for rescission, and rejected an August 31, 14, 2010, they paid Wachovia $1.83 million -- the amount Wachovia 14 claimed was due on the loan. Id. ¶ 12.

that Wachovia violated TILA by failing to make required disclosures to Julie. Plaintiffs admit that John received TILA disclosures 18 from Wachovia, but argue that Wachovia was obligated to make these 19 disclosures to Julie as well because as a settlor and beneficiary 20 of a revocable trust, she had an "ownership interest" triggering

Plaintiffs' second claim is that the TILA disclosures made to

John were defective. Under Regulation Z, a borrower has the right 24 to rescind a refinancing or equity mortgage transaction within 25 three business days of the date the borrower receives the TILA 26 disclosures or the date the borrower receives a notice of a right 27 to cancel, whichever is later -- and within three years if the 28 lender fails to provide such a notice. 12 C.F.R. § 226.15; 15

2010 tender letter. Id. ¶ 10. Plaintiffs allege that on September

Plaintiffs' FAC contains three claims. Their first claim is

TILA. Id. ¶¶ 10-12. 22

U.S.C. § 1635. Plaintiffs allege that the Notice of Right to

Cancel ("Notice") delivered to John stated that his right to 3 rescind the loan expired at midnight on February 26, 2008 -- the 4 same day John received the Notice and signed it. Id. ¶¶ 14-15.

Plaintiffs allege that the date on the Notice was altered by 6 someone other than John to February 23, 2008, and that the Notice 7 contains John's forged initials. Id. ¶ 15. 8

of a temporary restraining order and/or preliminary injunction 10 restraining Wachovia from reporting Plaintiffs' loan to major

credit reporting agencies. Id. ¶¶ 17-19. 12

As to Plaintiffs' first and second claims, Wachovia argues that Plaintiffs' third claim is for injunctive relief in the form

In its Motion, Wachovia seeks dismissal of all three claims.

Wachovia had no obligation to provide TILA disclosures to Julie; 15 that any error in the disclosure to John should be excused as a "typo"; that Plaintiffs' TILA claims are barred by TILA's statute 17 of limitations; that Plaintiffs' request for rescission is mooted 18 by Plaintiffs' subsequent payment in full of the loan; and that

TILA claim. Mot. at 2. Wachovia argues that Plaintiffs' third 21 claim should be dismissed because injunctive relief is a remedy 22 rather than a claim for relief; because it is a state-law claim 23 preempted by the Home Owners' Loan Act ("HOLA"); because Wachovia 24 can demonstrate a reasonable likelihood of success on the merits; 25 and because "even if the requested mandatory injunction were 26 granted, Wachovia neither has the right nor ability to 'delete' the 27 reported information it supplied to credit reporting agencies."


Plaintiffs otherwise fail to plead facts sufficient to constitute a 12(b)(6) "tests the legal sufficiency of a claim." Navarro v.


A motion to dismiss under Federal Rule of Civil Procedure

Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal can be based 5 on the lack of a cognizable legal theory or the absence of 6 sufficient facts alleged under a cognizable legal theory.

1990). Allegations of material fact are taken as true and 9 construed in the light most favorable to the nonmoving party.

1996). "[T]he tenet that a court must accept as true all of the 12 allegations contained in a complaint is inapplicable to legal 13 conclusions. Threadbare recitals of the elements of a cause of 14 action, supported by mere conclusory statements, do not suffice."

Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "When there are well-17 pleaded factual allegations, a court should assume their veracity 18 and then determine whether they plausibly give rise to an 19 entitlement to relief." Iqbal, 129 S. Ct. at 1950. A motion to 20 dismiss should be granted if the plaintiff fails to proffer "enough 21 facts to . . . nudge[] their claims across the line from 22 conceivable to plausible." Twombly, 550 U.S. at 570.

number of facts and documents. ECF No. 20 ("RJN"). Plaintiffs 28 oppose this request. ECF No. 22-1 ("Opp'n to RJN").

Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.

Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (citing Bell Atl.


A. Preliminary Matters

Wachovia requests this Court to take judicial notice of a reasonable dispute. Fed. R. Evid. 201. Courts may take judicial 3 notice of matters of public record, Hotel Emps. & Rest. Emps. Local

2005), and may do so without converting a motion to dismiss into a 6 motion for summary judgment, Lee v. City of Los Angeles, 250 F.3d

First, Wachovia requests the Court to take judicial notice of the following: 10

RJN at 2.

Wachovia Mortgage, FSB, RJN Ex. A, and a November 1, 2009 letter 17 converting Wachovia to a division of Wells Fargo Bank, N.A., id.

Ex. B. In opposition, Plaintiffs argue that these documents lack 19 adequate foundation, constitute inadmissible hearsay, and are 20 improper subjects for judicial notice. Opp'n to RJN at 3. 21

common knowledge not subject to reasonable dispute. Plaintiffs do not argue otherwise; their objections are merely procedural. As 24 such, the Court takes judicial notice of the fact that Wachovia is 25 now part of Wells Fargo Bank. As to Wachovia's request for the 26 court to take judicial notice of the fact Wachovia was subject to

HOLA and that OTS was its "primary regulator," the Court finds that 28 these are legal determinations inappropriate for judicial notice.

The Court may take judicial notice of facts not subject to

v. Vista Inn Mgmt. Co., 393 F. Supp. 2d 972, 978 (N.D. Cal.

668, 688-89 (9th Cir. 2001). 8

Wachovia Mortgage, FSB was a federal savings bank, subject to the Home Owner's Loan Act ("HOLA"), whose primary regulator was the Office of Thrift Supervision ("OTS") of the

Treasury Department. Pursuant to a merger on November 1, 2009, Wachovia Mortgage is now a division of Wells Fargo Bank, N.A.

Wachovia claims this statement is supported by the Charter of

That Wachovia is now part of Wells Fargo Bank is a fact of

adjustable rate mortgage note signed by John, RJN Ex. C ("Mortgage

Ex. D ("Deed of Trust"), and the Notice of Right to Cancel

("Notice") signed by John, id. Ex. E. Plaintiffs oppose, making 6 the same foundation and hearsay objections above. Plaintiffs argue 7 that the Notice "is at the core of this dispute such that it is 8 incapable of accurate and ready determination as to its accuracy."

A court may consider evidence on which the complaint

"necessarily relies" if (1) the complaint refers to the document;

Wachovia also asks the Court to take judicial notice of an

Note", a deed of trust signed by John on February 22, 2008, id.

Id. at 4. 10

(2) the document is central to the plaintiff's claim; and (3) no 13 party questions the authenticity of the copy attached to the 14 defendant's motion to dismiss. Marder v. Lopez, 450 F.3d 445, 448

(9th Cir. 2006). Plaintiffs' FAC refers to both the Mortgage Note 16 and the Notice, and both are central to their action. FAC ¶¶ 8, 11, 14-15. However, Plaintiffs vigorously dispute the authenticity 18 of the date and signature on the Notice. As such, the Court takes 19 judicial notice of the Mortgage Note. As to the Notice, the Court 20 only takes judicial notice of the undisputed facts evidenced by 21 this document -- such that it exists and that John received it --22 but not the disputed fact that John received it and signed it on

Given the nature of the action and the claims of impropriety, the

Court opts against taking judicial notice of this document.

Wachovia seeks dismissal of Plaintiffs' first claim, arguing that Wachovia owed Julie no duty to make TILA disclosures. Mot. at

February 23, 2008. The FAC does not refer to the Deed of Trust.

B. Plaintiffs' First Claim

2. Wachovia argues that the borrower of the loan was "John F. Shirley, as a trustee of the John F. Shirley and Julie E. Shirley

Trust." Id. Wachovia argues that in their Complaint, Plaintiffs 4 acknowledge that John, the trustee, received the required TILA 5 disclosures, and thus Wachovia fulfilled its TILA disclosure duty 6 when it made the disclosures to John. 7

trust, Julie had an ownership interest in the trust, and argue that under TILA, "each consumer whose ownership interest is or will be 10 subject to the security interest shall have the right to rescind."

Opp'n at 4 (citing 12 C.F.R. § 226.2(a)(11)). Plaintiffs cite

2007) in support of their argument. Amonette merely holds that a 14 trustee of a revocable living trust has standing to assert TILA 15 claims for rescission of a loan made to the trust. Id. at 1178-79.

It says nothing about the disclosure duties owed to trust 17 beneficiaries.

that Julie, as a settlor and beneficiary of the trust, was entitled 20 to TILA disclosures separate from and in addition to the 21 disclosures made to John, the trustee. The Court finds this 22 argument to be unavailing. Were the law as Plaintiffs wish it to 23 be, an entity lending to a trust would be required to spend 24 considerable time and effort identifying and notifying each trust 25 beneficiary or run the risk of violating TILA. By making TILA 26 disclosures to the trustee, the lender provides notice to an 27 individual who serves as a fiduciary of the beneficiaries, and thus 28 reasonably ensures the beneficiaries will be provided notice. The

Plaintiffs argue that as a settlor of a revocable living

Amonette v. IndyMac Bank, F.S.B., 515 F. Supp. 2d 1176 (D. Haw.

Plaintiffs cite to no other law in support of their argument

Court finds that Wachovia's disclosure obligations extended to the 2 trustee, John, and not to the trust's beneficiaries or settlors.

Because the first claim fails to state a claim under which relief 4 can be granted and cannot be salvaged through amendment, the Court

DISMISSES Plaintiffs' first claim WITH PREJUDICE. 6

Wachovia argues that Plaintiffs' second claim should be dismissed, contending that the Notice sent to John complied with 1635(a) gives borrowers the right to rescind within three business days of the date they receive notice of a right to cancel, and 12 within three years if the lender fails to provide such a notice.

John the Notice, and that Plaintiffs' allegations of forgery and 15 fraud in the document can be dismissed as "reliance on a possible 16 typo." Id. In response, Plaintiffs argue that the "defects" in 17 the Notice frustrated the purpose of the Notice, because the 18 deadline to rescind given in the Notice was the same date John 19 received the Notice. Opp'n at 3-4.

must -- the Court finds Wachovia's arguments in favor of dismissal to be unavailing. Assuming that John received the Notice on February 26, 2008, and the Notice provided that John's right to 24 rescind the loan expired at midnight on February 26, 2008, then

Plaintiffs did not receive notice of their three-day right to 26 rescind. As such, Plaintiffs had three years to rescind the loan, 27 and their May 3, 2010 letter seeking rescission would be timely.

Wachovia additionally argues that Plaintiffs' claim was

C. Plaintiffs' Second Claim

TILA. Mot. at 3. Wachovia does not dispute that 15 U.S.C. §

Id. Wachovia contends that it is uncontested that Wachovia sent

Taking the facts pleaded in Plaintiffs' FAC as true -- as it rendered moot when Plaintiffs paid off the loan, and the court 2 cannot "rescind a loan that no longer exists." Mot. at 5.

Wachovia cites no case law to support this argument. Plaintiffs 4 mailed Wachovia a letter seeking rescission, which Wachovia 5 rejected. Rather than risk litigation or further damage to their 6 credit, Plaintiffs paid the balance Wachovia claimed was owed on 7 the loan. It would not serve justice to deny Plaintiffs their 8 statutory right to rescind a loan due to this act of caution on 9 their part.

Second Claim is DENIED. 12

Wachovia makes a number of arguments in favor of dismissal of

Plaintiffs' third claim, including that it is preempted by HOLA; 15 that "plaintiffs have little chance of prevailing on the merits"; 16 and that injunctive relief is a remedy rather than a separate cause 17 of action. Id.

The Court finds merit in this last argument. Plaintiffs' third claim is not a claim for relief, but rather a remedy that may be appropriate should they prevail on their second claim.

Furthermore, the only relief sought in Plaintiffs' third claim is a 22 temporary restraining order and/or preliminary injunction 23 prohibiting Wachovia from reporting Plaintiffs' loan to credit 24 reporting agencies. Under Civil Local Rule 65, parties seeking a 25 temporary restraining order or preliminary injunction must file a 26 motion. Plaintiffs have taken no such action. 27

Plaintiffs' third claim and DISMISSES IT WITH PREJUDICE. In doing

For these reasons, Wachovia's motion to dismiss Plaintiffs'

D. Plaintiffs' Third Claim

For this reason, the Court GRANTS Wachovia's Motion as to so, the Court does not rule on the appropriateness of the 2 injunctive relief sought or bar Plaintiffs from seeking a temporary 3 restraining order or preliminary injunction by filing the 4 appropriate documents and making the required legal showing. The 5

Court merely dismisses the claim because it is not a claim, but a 6 possible remedy under Plaintiffs' second claim.


For the foregoing reasons, Defendant Wachovia Mortgage FSB's Motion to Dismiss is GRANTED IN PART and DENIED IN PART. The Court

DISMISSES WITH PREJUDICE the first claim and the third claim in John F. Shirley and Julie E. Shirley's First Amended Complaint. 13




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