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Chad Dillon Sandry v. First Franklin Financial Corp.

April 19, 2011

CHAD DILLON SANDRY,
PLAINTIFF,
v.
FIRST FRANKLIN FINANCIAL CORP., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

MEMORANDUM DECISION REGARDING DEFENDANTS' MOTION TO DISMISS FIRST AMENDED COMPLAINT (Doc. 20).

I. INTRODUCTION.

Plaintiffs Chad Dillon Sandry and Melanie E. Seasholtz ("Plaintiffs") proceed with an action for damages and injunctive relief. On December 28, 2010, Plaintiffs filed a first amended complaint ("FAC").

Defendants First Franklin Financial Corp., Home Loan Services, Inc., and Mortgage Electronic Registration Systems, Inc. ("Defendants") filed a motion to dismiss the FAC on January 7, 2011. (Doc. 20). Defendants also filed a motion to strike portions of the FAC. (Doc. 22).

Plaintiffs filed opposition to Defendants' motions on February 1, 2011. (Docs. 29, 30). Defendants filed a reply on March 14, 2011. (Docs. 14, 15).

II. FACTUAL BACKGROUND.

This action arises out of a loan Plaintiffs obtained for the purchase of their home in or about 2007 ("subject loan"). Plaintiffs first met with David Hoggett ("Hoggett"), an employee of Loan Review. Hoggett told Plaintiff's he would get "the best possible" loan for them. Hoggett submitted a loan application to First Franklin. The loan application overstated the value of the property by $95,000.00; Plaintiffs were not aware of this falsification. The actual value of the property was insufficient to qualify for the loan.

Plaintiffs allege that First Franklin and Loan Review had an agreement in place whereby First Franklin would accept loans containing knowingly false information. Plaintiffs further allege that Loan Review held itself out as First Franklin's agent, and that First Franklin paid Loan Review for leading Plaintiff's into a loan they did not qualify for. Loan Review told Plaintiffs that it "dealt directly with First Franklin and they would fund or approve the loan [] due to the relationship with First Franklin."

Plaintiffs allege that Defendants never explained the full terms of their loan, including but not limited to the interest rate, how the rate would be calculated, what the payment schedule would be, the risks and disadvantages of the loan, prepayment penalties, and other information. Plaintiffs were rushed into signing the documents. Defendants failed to disclose that the loan was designed to guarantee negative amortization if Plaintiffs followed the payment schedule.

III. LEGAL STANDARD.

Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.1990). To sufficiently state a claim to relief and survive a 12(b) (6) motion, the pleading "does not need detailed factual allegations" but the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Mere "labels and conclusions" or a "formulaic recitation of the elements of a cause of action will not do." Id. Rather, there must be "enough facts to state a claim to relief that is plausible on its face." Id. at 570. In other words, the "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, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted).

The Ninth Circuit has summarized the governing standard, in light of Twombly and Iqbal, as follows: "In sum, for a complaint to survive a motion to dismiss, the nonconclusory factual content, and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.2009) (internal quotation marks omitted). Apart from factual insufficiency, a complaint is also subject to dismissal under Rule 12(b)(6) where it lacks a cognizable legal theory, Balistreri, 901 F.2d at 699, or where the allegations on their face "show that relief is barred" for some legal reason, Jones v. Bock, 549 U.S. 199, 215, 127 S.Ct. 910, 166 L.Ed.2d 798 (2007).

In deciding whether to grant a motion to dismiss, the court must accept as true all "well-pleaded factual allegations" in the pleading under attack. Iqbal, 129 S.Ct. at 1950. A court is not, however, "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). "When ruling on a Rule 12(b)(6) motion to dismiss, if a district court considers evidence outside the pleadings, it must normally convert the 12(b)(6) motion into a Rule 56 motion for summary judgment, and it must give the nonmoving party an opportunity to respond." United States v. Ritchie, 342 F.3d 903, 907 (9th Cir.2003). "A court may, however, consider certain materials-documents ...


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