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James M. Weigand, et al v. Bank of America

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA


March 17, 2011

JAMES M. WEIGAND, ET AL.,
PLAINTIFFS,
v.
BANK OF AMERICA, N.A., FORMERLY KNOWN AS COUNTRYWIDE BANK,
DEFENDANT.

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

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS WITH LEAVE TO AMEND

In this mortgage foreclosure action Defendant filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), which Plaintiffs opposed. For the reasons which follow, the motion to dismiss is GRANTED WITH LEAVE TO AMEND.

According to the complaint, Plaintiffs own a residence located at 9909 Stanislaus River Drive in Oakdale, California ("Oakdale Residence"), where they both resided until 2007, when Plaintiff James Weigand relocated to Carlsbad for work. Since then, only Plaintiff Sandra Weigand has resided in the Oakdale Residence. In 2007 Plaintiffs purchased a residence located at 2105 Twain Avenue in Carlsbad, California ("Carlsbad Residence"), where Mr. Weigand has resided since 2007. Solely with Defendant's assistance, the purchase of the Carlsbad Residence was financed through a refinancing of the Oakdale Residence. At the time of the transaction, Plaintiffs and Defendant allegedly all knew and agreed that the intention was for Mrs. Weigand to occupy the Oakdale Residence until it was sold and that Plaintiffs could not qualify for a mortgage to purchase the Carlsbad Residence unless the Oakdale Residence was sold. Defendant placed Plaintiffs into adjustable rate mortgages, although it allegedly knew that Plaintiffs could not make mortgage payments on both residences once the rates adjusted. In addition, Plaintiffs applied for a home equity loan with Defendant secured by the Carlsbad Residence, however, Defendant unilaterally and without notice to Plaintiffs allegedly changed the application so that the loan was secured by the Oakdale Residence. Plaintiffs received several short sale offers for the Oakdale Residence, but Defendant allegedly failed to act on them while real property values started to plummet. Plaintiffs contend that Defendant stripped their Oakdale Residence of all equity through a refinancing based on predatory lending practices, convincing them to use the refinance proceeds to finance the purchase of the Carlsbad Residence, although they knew that Plaintiffs could not pay off the loans. Plaintiffs filed the instant action to stave off foreclosure.

Plaintiffs filed a complaint alleging claims for violation of the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. ("TILA"), the Real Estate Settlement Procedure Act, 12 U.S.C. § 2601 et . ("RESPA"), California Business and Professions Code Section 17200 et seq., breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing. They seek damages, rescission and injunctive relief preventing Defendant from collecting on the loans. Plaintiffs based federal subject matter jurisdiction based on federal question under 28 U.S.C. Section 1331 and supplemental jurisdiction under 28 U.S.C. Section 1367. (Compl. at 2.)

Defendant filed a motion to dismiss all causes of action for failure to state a claim upon which relief can be granted. A Rule 12(b)(6) motion tests the sufficiency of the complaint. 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." Bell Atl. 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).

Defendant argues, among other things, that the first cause of action based on TILA violations is time barred. The applicable statute of limitations for damage claims under TILA is "one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e). "[T]he limitations period in Section 1640(e) runs from the date of consummation of the transaction . . .." King v. California, 784 F.2d 910, 915 (9th Cir. 1986). Both loans were consummated in February 2007. (Compl. at 5; Def.'s Request for Judicial Notice Exh. A, B, E & F.)*fn1 This action was filed on March 1, 2010, long after the statute of limitations had expired. Plaintiffs did not address this argument in their opposition.

"A motion to dismiss based on the running of the statute of limitations period may be granted only 'if the assertions of the complaint, read with the required liberality, would not permit the plaintiff to prove the statute was tolled.'" Supermail Cargo, Inc. v. United States, 68 F.3d 1204, 1206-07 (9th Cir. 1995), quoting Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th Cir. 1980). The untimeliness must appear beyond doubt on the face of the complaint before a claim will be dismissed as time-barred. See Supermail Cargo, 68 F.3d at 1206-07.

Because the expiration of the statute of limitations appears on the face of the complaint and because Plaintiffs did not argue that the statute should be equitably tolled, their TILA claim for damages is dismissed as time-barred.

Defendant also argues that Plaintiffs' rescission claim under TILA is time-barred. Pursuant to 15 U.S.C. Section 1635(f), "[a]n obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first . . .." "Consummation means the time that a consumer becomes contractually obligated on a credit transaction." 12 C.F.R. § 226.2(a)(13).

Although the note and deed of trust documents are dated February 23, 2007, it appears that both loans were signed by Mr. Weigand on February 28, 2007, when his signatures were notarized. (See Def.'s Request for Judicial Notice Exh. A, B, E & F.) This action was filed on March 1, 2010. Under Federal Rule of Civil Procedure 6(a), the first day Plaintiffs could file the complaint was March 1, 2010. In the reply brief, Defendant does not dispute that the rescission claim was therefore timely filed. Accordingly, to the extent Defendant's motion is based on the untimeliness of the rescission claim, it is denied.

Defendant also argues that Plaintiffs did not adequately allege rescission because they did not allege they had tendered the payment of the amounts due under the loans. One of the requirements for rescission under section 1635 is the borrower's return of money received from the lender, less interest, finance charges and similar items. Unless the lender acquiesces in the rescission, the rescission is not automatic. Yamamoto v. Bank of New York, 329 F.3d 1167, 1172 (9th Cir. 2003). If rescission were automatic, "a borrower could get out from under a secured loan simply by claiming TILA violations, whether or not the lender had actually committed any." Id. (emphasis in original). A court "may impose conditions on rescission that assure that the borrower meets [his or] her obligations once the creditor has performed its obligations." Id. at 1173. If the borrower cannot comply with the obligations, i.e., lacks capacity to pay back what he or she received from the lender, the court may decide not to enforce the rescission. Id.

Plaintiffs argue that they alleged they can and will tender the funds back to Defendant. This assertion is not supported by a citation to the complaint. Upon review of the TILA claim in the complaint, including the portions of the complaint which are incorporated into the claim by reference, it does not appear that Plaintiffs included this allegation. (See Compl. at 1-10.) Furthermore, upon review of the exhibits attached to the complaint, the purported notice of rescission for each residence, dated February 26, 2010, does not include an offer to repay but only a statement that upon compliance with Plaintiffs' demands, "we will be contacting you to discuss the tender of the reduced payoff amount subject to offset all damages and costs [sic]." (Emphasis added.) This is insufficient to support a claim for rescission. Accordingly, Defendant's motion to dismiss the TILA claim to the extent it seeks rescission is granted.

Plaintiffs' only remaining federal claim is the second cause of action alleging that Defendant violated RESPA. Defendant argues that this claim should be dismissed because it is alleged with insufficient particularity. Plaintiffs alleged that they were uncertain whether Defendant is or was a servicer of either loan, however, they stated in a general manner that Defendant "engaged in a pattern or practice of non-compliance with requirements of the mortgage servicer provisions of RESPA as set forth in 12 U.S.C. § 2605." (Compl. at 10.) They further alleged on information and belief that Defendant "received money and/or things of value for referrals of settlement service business related to the Subject Loans, in addition to charging Plaintiffs for services that were never rendered in that they conspired to over charge for an appraisal and committed other similar acts." (Id. at 11.)

Plaintiffs do not allege sufficient facts in support of the RESPA claim to meet the notice pleading requirements of Rule 8(a) of Federal Rules of Civil Procedure. Although Rule 8 does not require that the complaint include all facts necessary to carry the plaintiff's burden, it must allege plausible grounds to infer the existence of a claim for relief. Al-Kidd v. Ashcroft, 580 F.3d 949, 977 (9th Cir. 2009). This calls for enough facts to raise a reasonable expectation that discovery will reveal evidence to prove that claim. Id. Plaintiffs' complaint falls short of this requirement because it does not allege that Defendant was at any time the servicer on either loan, and because it does not identify the alleged violations. Even the allegation regarding the overcharge for the appraisal does not state whether it was the appraisal of the Carlsbad Residence or the Oakdale Residence.

In their opposition, Plaintiffs argue that they sent Defendant a qualified written request under 12 U.S.C. Section 2605(e). Although this is not alleged in the complaint, attached to the complaint as parts of Exhibits A and B are February 26, 2010 letters, which among other things, request certain information from Defendant pursuant to section 2605(e). Plaintiffs suggest that the request was necessary to more specifically allege Defendant's RESPA violations, and that Defendant's failure to fully respond to the request constitutes an independent RESPA violation. (Opp'n at 6-7.) Defendant's alleged failure to fully respond cannot be inferred from the complaint or any of its exhibits.

Plaintiff's argument is unavailing in opposition to Defendant's motion to dismiss. If Defendant was not a loan servicer at any time, RESPA does not obligate it to respond to a section 2605(e) request. See 12 U.S.C. § 2605(e). Assuming that Defendant is or was a loan servicer, to the extent Plaintiffs are now arguing that failure to fully respond is a separate violation, the violation is not alleged in the complaint.

Based on the foregoing, Defendant's motion to dismiss the first and second causes of action is GRANTED. Having granted the motion with respect to the federal claims, the court must next consider whether Plaintiffs' request for leave to amend should be granted. Rule 15 advises the court that leave to amend shall be freely given when justice so requires. Fed. R. Civ. P. 15(a). "This policy is to be applied with extreme liberality." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (internal quotation marks and citation omitted).

In the absence of any apparent or declared reason -- such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of amendment, etc. -- the leave sought should, as the rules require, be "freely given."

Foman v. Davis, 371 U.S. 178, 182 (1962). Dismissal with prejudice and without leave to amend is not appropriate unless it is clear that the complaint could not be saved by amendment.

. Because it appears that Plaintiffs may potentially be able to amend the claims, the first and second causes of action are DISMISSED WITH LEAVE TO AMEND.

As no federal claims remain in this action, the court declines to exercise supplemental jurisdiction over the remaining state law claims. 28 U.S.C. § 1367(c). They are DISMISSED WITHOUT PREJUDICE for lack of subject matter jurisdiction. Should Plaintiffs choose to file an amended complaint, they may re-allege these claims.

Accordingly, it is hereby ORDERED as follows:

1. Defendant's motion to dismiss is GRANTED WITH LEAVE TO AMEND.

2. If Plaintiffs choose to file an amended complaint, they must file and serve it no later March 30, 2011. Defendant's response to the amended complaint, if any, must be filed and served within the time set forth in Federal Rule of Civil Procedure 15(a)(3).

COPY TO:

HON. BARBARA L. MAJOR UNITED STATES MAGISTRATE JUDGE ALL PARTIES/COUNSEL


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