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Chieu Edwards v. Aurora Loan Services

April 29, 2011

CHIEU EDWARDS, PLAINTIFF,
v.
AURORA LOAN SERVICES, LLC; AND DOES 1-50, DEFENDANTS.



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

FINDINGS & RECOMMENDATIONS

Presently before this court is defendant's motion to dismiss plaintiff's complaint (Dkt. No. 30-1), a request for judicial notice ("RJN") in support thereof (RJN, Dkt. No. 30-2), defendant's motion to expunge lis pendens (Dkt. No. 32-2), and request for judicial notice in support thereof (Dkt. No. 32-3). Defendant's motion for an order expunging the lis pendens also seeks an award of costs and attorneys' fees in the amount of $1,250. (Dkt. No. 32-1 at 12-13.) Plaintiff opposed these motions in a single written opposition. (Oppo., Dkt. No. 41.) The undersigned has fully considered the parties' briefs and the entire record in this case and, for the reasons stated below, recommends that defendant's motion to dismiss be granted. The undersigned also recommends that the motion to expunge lis pendens be granted, but recommends that the accompanying request for attorneys' fees be denied.

I. BACKGROUND

Plaintiff Chieu Edwards ("Edwards" or the "plaintiff"), proceeding without counsel in this action, filed a complaint in San Joaquin County Superior Court on December 24, 2009. (Dkt. No. 2-2.)*fn1 On January 12, 2010, defendant Aurora Loan Services, LLC ("Aurora" or "defendant") filed a notice of removal pursuant to 28 U.S.C. §§ 1331, 1367, 1441 and 1446. (Dkt. No. 2.)

Defendant filed a motion to dismiss plaintiff's complaint. (Dkt. No. 8.) The undersigned granted the motion, but gave plaintiff leave to amend her pleading to correct for various defects. (Dkt. No. 28.) Those defects included a failure to clearly allege how defendant might have violated the law, and reliance upon a legally questionable theory that an alleged "Bonded Promissory Note" served as legal tender fully satisfying plaintiff's loan debt. (Id.)

On August 4, 2010, plaintiff filed a First Amended Complaint (the "FAC"). (FAC, Dkt. No. 29.) On August 17, 2010, defendant filed the pending motion to dismiss the FAC. (Dkt. No. 30.) Defendant filed the pending motion to expunge lis pendens and for costs and attorneys' fees that same day. (Dkt. No. 32.)

Plaintiff appears to have copied large segments of text and pasted them into her FAC, making the FAC's factual allegations unclear. The FAC's inclusion of pages of argument and lengthy discussions of the history of banking in the United States obscures the few factual allegations within the pleading. Nonetheless, it appears the FAC attempts to assert five formal claims for relief, which sometimes include other claims within their supporting paragraphs. These claims are: (1) "Denial of Constitutional Substantive Rights of Due Process" (which, as pleaded, appears to include a claim for alleged wrongful foreclosure (FAC at 7)); (2) "Bank Fraud" (which, as pleaded, appears to include claims for alleged violations of the Truth inLending Act ("TILA") and the Real Estate Settlement Procedures Act ("RESPA") based on an alleged non-disclosure); (3) "Willful Misrepresentation, Non-Disclosure, and Withholding of Material Facts and Documentation"; (4) "Failure to Name Real Party of Interest"; and (5) "TILA Violations." (FAC at 6, 9, 13, 14, 19.) These claims arise from an alleged loan secured by real property in Lathrop, California (the "subject property"), and the ultimate foreclosure and trustee's sale of that property.

While the FAC's factual allegations are not straightforward and are often buried within conclusions and legal arguments, it is apparent that the FAC alleges that plaintiff "submitted a signed application for a home loan and received the proceeds from said alleged loan on or about March 30, 2006[,] the date of recording a Deed of Trust signed by" plaintiff. (FAC at 4-5.) Later, the foreclosure process was initiated and defendant sold the subject property through a trustee's sale. (Id. at 5.) The FAC alleges that, prior to the trustee's sale, defendant did not place "into any court record" any evidence of "actual cost they allegedly paid for their interest in the subject loan transfer or the subject private land and house." (Id. at 5.) The FAC also alleges that "defendant QUALITY LOAN SERVICE CORPORATION, as so-called named Trustee of the Deed of Trust and participant in the alleged Trustee Sale" failed to issue a "receipt as evidence of satisfaction of all claims against the subject property."*fn2 (Id. at 10.) Plaintiff alleges that defendant could not properly foreclose without a "judicial determination of the status of said Defendant as the owner of the subject property in a Court and by way of a Quiet Title action" (id. at 7 (citing California Civil Code § 2924)), and the FAC seeks to "set aside foreclosure" and "discharge of the original fraudulent loan," along with seeking $2,610,000.00 in damages. (Id. at 1-2, 11.)

Aside from defendant's alleged failure to involve a court prior to foreclosure, the FAC also alleges that the foreclosure process and trustee's sale were improper for a separate reason: plaintiff's alleged tender of loan repayment to defendant, which allegedly satisfied her obligations under her loan prior to foreclosure. Specifically, the FAC alleges that "[o]n or about November 6, 2009[,] under the terms of a private agreement between Plaintiff and a third party, a Bonded Promissory Note was conveyed by said third party" to defendant, that defendant received that Bonded Promissory Note (the "BPN") on June 8, 2008, and that because defendant "failed to return" such bonded promissory note to plaintiff, plaintiff's obligations for the "above referenced loan" were "fully satisfied." (Id. at 6.)

While the allegations are unclear, the FAC also appears to suggest that plaintiff's alleged loan was funded by monies defendants created "out of thin air," and that defendant's failure to inform her of this alleged source of her loan funds effectively voids the loan agreement and amounts to a "non-disclosure contrary to the requirements of the federal Truth in Lending Act ("TILA") and the Real Estate Settlement Procedures Act ("RESPA") . . . ." (Id. at 10-13.)

The FAC also alleges that defendant's foreclosure was done with a "lack of constitutional due process of law." (Id. at 7.) While the allegations are again unclear, the FAC also appears to allege that defendant is a corporation existing under the laws of the State of California, that "[s]uch State of California and all corporate subdivisions thereof, which is inclusive of all Defendants herein, are considered and act as Federal corporations . . ." and as a "federal corporation," defendant allegedly can be liable for depriving plaintiff of "her Rights under Due Process" of law to free enjoyment of land. (Id. at 15.)

Finally, perhaps overlooking the fact that plaintiff herself crafted the pleading and is charged with naming the defendants, the FAC also rather confusingly discusses the "real party in interest" that "should have been named as defendants" (id. at 17-18) and lists "the City of London Corporation, The House of Windsor, The Vatican or other unnamed and unrevealed parties." (Id. at 17.)

In its pending motion, defendant again seeks to dismiss the FAC for failure to state a claim.*fn3 Defendant makes several arguments challenging the sufficiency of the FAC. First, defendant argues that the facts, as pleaded, do not demonstrate that plaintiff is entitled to relief. Defendant avers that: (1) plaintiff fails to plead a valid "tender" of her debt because, as a matter of law, the form of payment allegedly tendered by plaintiff - the BPN - is not an acceptable form of payment and thus that the Deed of Trust was properly foreclosed upon; and

(2) as a matter of law, non-judicial foreclosure proceedings need not be preceded by judicial determinations of note ownership. Defendant also argues that plaintiff failed to plead facts supporting claims for fraud and violation of the TILA. Defendant argues that plaintiff has not pleaded facts sufficient to show entitlement to the over $2 million in damages she alleges, and that the FAC fails to comply with minimal pleading standards. (Dkt. No. 30-1.)

Defendant confirms that plaintiff borrowed $597,400.00 under a promissory note to purchase a home located in Lathrop, California. (RJN, Exh. A.) Defendant contends that in 2008, plaintiff breached her promise to repay the indebtedness.*fn4 (Id.) Non-judicial foreclosure proceedings commenced, and the subject property was sold at public auction on July 29, 2009. (RJN, Exh. E.) On December 17, 2009, a Trustee's Deed Upon Sale was recorded in favor of defendant in the San Joaquin County Recorder's Office. (Id.)

Along with dismissal of the action, defendant also seeks an order of this court expunging a lis pendens plaintiff placed on the subject real property. (Dkt. No. 32.) From the documents attached to defendant's request for judicial notice in support of the motion to expunge (Dkt. No. 32-3), it appears that plaintiff recorded the lis pendens with the San Joaquin County Recorder's office on October 30, 2009. (Dkt. No. 32-3, Exh. F (a Notice of Pendency of Action recorded October 30, 2009).) Plaintiff stated in the lis pendens that the amount at issue was $2,610,000.00 and that she sought to impose an equitable lien over the real property. (Id.) Defendant seeks attorneys' fees and costs in the amount of $1,250.00 (Dkt. No. 32-2 at 2), which may be recovered by a party prevailing on an expungement motion where a lis pendens was recorded without "substantial justification." (Dkt. No. 32-1 at 12.)

In her opposition to defendant's motions, plaintiff echoes the allegation in her FAC that because defendant did not inform her that it created money "out of thin air," this failure to inform signifies that there was "no Consideration" and thus "no CONTRACT" for her loan. (Oppo., Dkt. No. 41 at 2.) Plaintiff also contends that the entity who foreclosed on her home had no right to do so, because plaintiff never "appoint[ed]" a trustee and thus "substitution of QUALITY LOAN SERVICE CORPORATION as Trustee is void and null . . . ." (Id.)*fn5 Plaintiff avers that a "Bonded Promissory Note" is "legal tender for all debts." (Id.) Plaintiff states that she opposes the motion to expunge her lis pendens and request for attorneys' fees, but cites no authorities supporting her position. (Id.)

II. MOTION TO DISMISS PURSUANT TO RULE 12(b)(6)

A. Legal Standard for a Motion to Dismiss

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 the 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). The complaint must give a defendant "fair notice of what the claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations and modification omitted).

On a motion to dismiss, the court construes the pleading in the light most favorable to the plaintiff and resolves all doubts in the plaintiff's favor.*fn6 Corrie v. Caterpiller, 503 F.3d 974, 977 (9th Cir. 2007); Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). The complaint's factual allegations are accepted as true. Church of Scientology of Cal. v. Flynn, 744 F.2d 694, 696 (9th Cir. 1984). In order to survive dismissal for failure to state a claim pursuant to Rule 12(b)(6), however, a complaint must contain more than a "formulaic recitation of the elements of a cause of action;" it must contain factual allegations sufficient to "raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545 (2007). Factually unsupported claims framed as legal conclusions, and mere recitations of the legal elements of a claim, do not give rise to a cognizable claim for relief. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-51 (2009) (holding that Rule 8 "demands more than an unadorned, the defendant-unlawfully-harmed-me-accusation").

Iqbal and Twombly describe a two-step process for evaluation of motions to dismiss. The court first identifies the non-conclusory factual allegations, and the court then determines whether these allegations, taken as true and construed in the light most favorable to the plaintiff, "plausibly give rise to an entitlement to relief." Iqbal, 129 S. Ct. at 1949-50.

"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). "'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).

"Plausibility," as it is used in Twombly and Iqbal, does not refer to the likelihood that a pleader will succeed in proving the allegations. Instead, it refers to whether the non-conclusory factual allegations, when assumed to be true, "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 557). A complaint may fail to show a right to relief either by lacking a cognizable legal theory or by lacking sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). Only where a plaintiff has failed to "nudge [his or her] claims across the line from conceivable to plausible," is the complaint properly dismissed. Iqbal, 129 S. Ct. at 1951-52. While the plausibility requirement is not akin to a probability requirement, it demands more than "a sheer possibility that a defendant has acted unlawfully."

Id. at 1949; accord Twombly, 550 U.S. at 556. This plausibility inquiry is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950.

In ruling on a motion to dismiss pursuant to Rule 12(b)(6), the court "may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters 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).*fn7 However, under the "incorporation by reference" doctrine, a court may also review 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) (citation omitted and modification in original). The incorporation by reference doctrine also applies "to situations in which the plaintiff's claim depends on the contents of a document, the defendant attaches the document to its motion to dismiss, and the parties do not dispute the authenticity of the document, even though the plaintiff does not explicitly allege the contents of that document in the complaint." Id.

B. Legal Standard for a Motion to Expunge Lis Pendens A lis pendens must be based on an action that asserts a "real property claim." Cal. Civ. Proc. Code §§ 405.20, 405.31. A "real property claim" is an action that affects title to, or right to possession of, real property, or use of an easement identified in the pleading. Cal. Civ. Proc. Code § 405.4; American National Red Cross v. United Way California Capital Region, No. CIV. S-07-1236 WBS DAD, 2007 WL 4522967, at *3 (E.D. Cal. Dec. 19, 2007) (not reported) ("To determine if plaintiff asserts a real property claim, the court looks only to plaintiff's pleading. [Citation.] A claim that seeks an actual interest in the property or that 'affects ownership of the disputed property' is a real property claim.") (emphasis added) (citing Campbell v. Superior Court, 132 Cal. App. 4th 904, 913 (2005); Kirkeby v. Superior Court, 33 Cal. 4th 642, 648-49 (2004).)

A lis pendens shall be expunged if the court finds either that the pleading on which the notice is based does not contain a real property claim, or that the claimant failed to establish by a preponderance of the evidence the probable validity of the real property claim. Cal. Civ. Proc. Code §§ 405.31, 405.32; e.g., Fried v. Washington Mut. Bank, No. C 09-1049 SBA, 2010 WL 4689580, at *2 (N.D. Cal. Nov. 9, 2010) (not reported). It follows that a court must order a lis pendens expunged after the court dismisses the action entirely. E.g., Fried, 2010 WL 4689580, at *2 (ordering expungement of lis pendens after the court "dismissed the underlying action, leaving Plaintiff without a real property claim . . . ."). A motion for expungement may be brought at any time after notice of pendency has been recorded. Cal. Civ. Pro. Code § 405.30. The party who recorded the notice of lis pendens bears the burden of proof in opposing expungement. Id.

B. DISCUSSION A. Motion to Dismiss

As a preliminary matter, the undersigned clarifies that the only pleading presently before it is the FAC.*fn8 Allegations raised in plaintiff's opposition but absent from the FAC - for instance, the theory that Quality Loan Service Corporation had "no right" to foreclose because plaintiff herself never appointed a trustee (Dkt. No. 41 at 2) - are not part of the operative pleading and are not sufficient to correct for factual deficiencies within the FAC. Nonetheless, the undersigned ...


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