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Sean Patrick Solomon, Et v. E-Loan

March 29, 2011

SEAN PATRICK SOLOMON, ET AL., PLAINTIFFS,
v.
E-LOAN, INC., ET AL.,
DEFENDANTS.



The opinion of the court was delivered by: Kendall J. Newman United States Magistrate Judge

ORDER AND FINDINGS AND RECOMMENDATIONS

Defendants' motions to dismiss came on regularly for hearing March 3, 2011. Plaintiffs appeared on their own behalf and are proceeding in this action without counsel.*fn1 YawJiun Wu appeared for defendants Wells Fargo, John Kennerty and Mortgage Electronic Registration Systems, Inc. ("MERS"), (hereinafter collectively the "Wells Fargo defendants".) Bernard Kornberg appeared for defendant E-Loan, Inc. Brian Paino appeared telephonically for defendants Cal-Western Reconveyance Corp., LSI Title, and Marco Marquesz, (hereinafter collectively the "Cal-Western defendants".) Upon review of the documents in support and opposition, upon hearing the arguments of plaintiffs and counsel, and good cause appearing, THE COURT FINDS AS FOLLOWS:

This action was originally filed on August 9, 2010, as an adversary action in bankruptcy court. Plaintiffs allege state law claims arising out of the foreclosure sale of plaintiffs' home, i.e. fraud, breach of fiduciary duty, breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, violation of the California Unfair Competition Law ("UCL"), Cal. Business and Professions Code § 17200, quiet title, RICO, and intentional misrepresentation. A motion to withdraw the reference from the bankruptcy court was made by the Wells Fargo defendants (dckt. no. 1) and the motion was granted by Judge Mendez*fn2 in an order filed December 13, 2010. (Dckt. no. 18.) Judge Mendez also related the case to a previously filed action, Solomon v. E-Loan, No. 2:10-cv-257 JAM KJM PS, which alleged claims arising out of the same home loan. The prior matter proceeded to final judgment for defendant Wells Fargo and the remaining state law claims against the other defendants were remanded to state court by order filed June 25, 2010. (Solomon v. E-Loan, No. 2:10-cv-00257 JAM KJM PS, Dckt. nos. 55, 56.)

Before the matter was withdrawn from bankruptcy, defendant E-Loan noticed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). An opposition and reply were filed in the bankruptcy proceedings and that motion is now before the court. (Dckt. no. 24). Also pending before the court are the motions to dismiss and to strike punitive damages allegations brought by the Wells Fargo defendants. (Dckt. nos. 21, 22). The Cal-Western defendants filed a joinder in defendant E-Loan's motion to dismiss. (Dckt. no. 44.) The undersigned has fully considered the parties' briefs and the record in this case and, for the reasons stated below, recommends that defendants' motions to dismiss be granted and that the action be dismissed with prejudice.*fn3

On February 10, 2011, plaintiff's filed a motion to disqualify certain defendants' counsel and a motion to stay hearing on the motions to dismiss pending resolution of the motion to disqualify. (Dckt. nos. 34, 35). At the hearing on the motions to dismiss, the court inquired of plaintiffs as to the basis for their motion to disqualify. Plaintiffs failed to articulate any proper basis for disqualification of counsel and the motion is accordingly denied.

I. BACKGROUND

The loan at issue was made by E-Loan to plaintiffs on September 20, 2004, for the purpose of plaintiffs purchasing a residential property in Grass Valley, California. See Defendants' Request for Judicial Notice ("DRJN"), Ex. 3.*fn4 The trustee named in the deed of trust was Lenders First Choice, and MERS was named as the beneficiary. DRJN, Ex. 2. At the hearing on this matter, counsel for defendant Wells Fargo clarified that Wells Fargo was a successor-in-interest to E-Loan and not merely a servicer of the loan. Defendant John Kennerty is alleged to be Wells Fargo's agent. Adversary complaint at 21:8-9. Defendant Cal-Western Reconveyance was substituted as trustee. DRJN, Ex. 10. Defendant LSI is Cal-Westerns' limited agent solely to sign and present for recording Notices of Default and Notices of Sale and defendant Marquez is an employee of LSI and was the signatory of the Notice of Default at issue in this matter. DRJN, Ex. 7.

II. LEGAL STANDARDS

A motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the sufficiency of the pleadings set forth in the complaint. Vega v. JPMorgan Chase Bank, N.A., 654 F. Supp. 2d 1104, 1109 (E.D. Cal. 2009). Under the "notice pleading" standard of the Federal Rules of Civil Procedure, a plaintiff's complaint must provide, in part, a "short and plain statement" of plaintiff's claims showing entitlement to relief. Fed. R. Civ. P. 8(a)(2); see also Paulsen v. CNF, Inc., 559 F.3d 1061, 1071 (9th Cir. 2009). "A complaint may survive a motion to dismiss if, taking all well-pleaded factual allegations as true, it contains 'enough facts to state a claim to relief that is plausible on its face.'" Coto Settlement v. Eisenberg, 593 F.3d 1031, 1034 (9th Cir. 2010) (quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)). "'A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Caviness v. Horizon Cmty. Learning Ctr., Inc., 590 F.3d 806, 812 (9th Cir. 2010) (quoting Iqbal, 129 S. Ct. at 1949). The court accepts all of the facts alleged in the complaint as true and construes them in the light most favorable to the plaintiff. Corrie v. Caterpillar, 503 F.3d 974, 977 (9th Cir. 2007). The court is "not, however, required to accept as true conclusory allegations that are contradicted by documents referred to in the complaint, and [the court does] not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations." Paulsen, 559 F.3d at 1071 (citations and quotation marks omitted). The court must construe a pro se pleading liberally to determine if it states a claim and, prior to dismissal, tell a plaintiff of deficiencies in his complaint and give plaintiff an opportunity to cure them if it appears at all possible that the plaintiff can correct the defect. See Lopez v. Smith, 203 F.3d 1122, 1130-31 (9th Cir. 2000) (en banc).

In ruling on a motion to dismiss pursuant to Rule 12(b), the court "may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, andmatters properly subject to judicial notice." Outdoor Media Group, Inc. v. City of Beaumont, 506 F.3d 895, 899 (9th Cir. 2007) (citation and quotation marks omitted). The court may consider judicially noticeable court records to determine the preclusive effect of prior decisions without converting a motion to dismiss to a motion for summary judgment. See, e.g., Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 1995).

A motion to dismiss pursuant to Rule 12(b)(6) may also challenge a complaint's compliance with Federal Rule of Civil Procedure 9(b) where fraud is an essential element of a claim. See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003). Rule 9(b), which provides a heightened pleading standard, states: "In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). These circumstances include the "'time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations.'" Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (per curiam) (quoting Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004)); see also Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) ("Averments of fraud must be accompanied by 'the who, what, when, where, and how' of the misconduct charged" (citation and quotation marks omitted).). "Rule 9(b) demands that the circumstances constituting the alleged fraud be specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong." Kearns, 567 F.3d at 1124 (citing Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) (internal quotation marks omitted and modification in original).

III. DISCUSSION

A. Res Judicata

Defendants Wells Fargo and Kennerty contend the instant litigation against them is barred by res judicata. Defendants' contention is well taken. Under the doctrine of claim preclusion, a final judgment forecloses 'successive litigation of the very same claim, whether or not relitigation of the claim raises the same issues as the earlier suit.'" Taylor v. Sturgell, 553 U.S. 880, 892 (2008) (quoting New Hampshire v. Maine, 532 U.S. 742, 748 (2001)). Stated differently, "[c]laim preclusion, often referred to as res judicata, bars any subsequent suit on claims that were raised or could have been raised in a prior action." Cell Therapeutics, Inc. v. Lash Group, Inc., 586 F.3d 1204, 1212 (9th Cir. 2009); accord Tahoe Sierra Preservation Council, Inc. v. Tahoe Reg. Planning Agency, 322 F.3d 1064, 1078 (9th Cir. 2003) ("Newly articulated claims based on the same nucleus of facts may still be subject to a res judicata finding if the claims could have been brought in the earlier action."); Stewart v. U.S. Bancorp, 297 F.3d 953, 956 (9th Cir. 2002). The party seeking to apply claim preclusion bears the burden of demonstrating that "there is (1) an identity of claims; (2) a final judgment on the merits; and (3) identity or privity between the parties." Cell Therapeutics, Inc., 586 F.3d at 1212 (citation and quotation marks omitted); accord Stewart, 297 F.3d at 956; see also Taylor, 553 U.S. at 907 (stating that because claim preclusion is an affirmative defense, the party asserting the doctrine bears the burden of establishing all necessary elements).

Here, there is an identity of claims between the instant action and the prior action of Solomon v. E-Loan, No. 2:10-cv-00257 JAM KJM PS. The court examines "four factors to determine whether there is an 'identity of claims': . . . (1) whether the two suits arise out of the same transactional nucleus of facts; (2) whether rights or interests established in the prior judgment would be destroyed or impaired by prosecution of the second action; (3) whether the two suits involve infringement of the same right; and (4) whether substantially the same evidence is presented in the two actions." ProShipLine Inc. v. Aspen Infrastructures Ltd., 609 F.3d 960, 968 (9th Cir. 2010) (emphasis omitted). "Whether two suits arise out of the same transactional nucleus depends upon whether they are related to the same set of facts and whether they could conveniently be tried together." Id. (citations, quotation marks, and emphasis omitted). "Reliance on the transactional nucleus element is especially appropriate because the element is 'outcome determinative.'" Id. (quoting Mpoyo v. Litton Electro-Optical Sys., 430 F.3d 985, 987 (9th Cir. 2005)); see also Int'l Union of Operating Engineers-Employers Constr. Indus. Pension, Welfare & Training Trust Funds v. Karr, 994 F.2d 1426, 1430 (9th Cir. 1993) (collecting cases using the same nucleus of operative facts as the exclusive factor to bar a second action under the claim preclusion doctrine).

The gravamen of the complaint in the instant action is that defendants violated the law in the course of lending plaintiffs money to purchase a residence. The conclusion that plaintiffs' two actions involve the same claims is established because the two cases arise out of the same transactional nucleus of facts, the rights established in the prior action would be destroyed if plaintiffs were to prevail in the adversary action against Wells Fargo, the adversary claim involves alleged infringement of the same property and contract rights pertaining to plaintiffs' residential property loan secured by a deed of trust, and the same evidence is presented in both actions, as is apparent from the exhibits submitted by plaintiffs in the prior action and the exhibits submitted in the pending action, which are the same. See Adams v. Cal. Dep't of Health Servs., 487 F.3d 684, 689 (9th Cir. 2007). Moreover, all claims raised now in the adversary action, ...


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