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Donnie Little and Donna Little v. Accent Conservatory and Sunroom Designs

June 7, 2011


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


Defendant Wells Fargo Bank moves to dismiss plaintiffs' first amended complaint. The motion has been fully briefed and the Court finds this matter suitable for determination on the papers submitted and without oral argument pursuant to Civil Local Rule 7.1(d)(1).


On September 22, 2008, plaintiffs borrowed $271,999.01 from Wells Fargo to refinance their home, to take cash from the equity in their home and to pay for an addition to their home to be completed by defendants Kimkorp, Inc. and Accent Conservatory and Sunroom Designs. As part of the loan closing, plaintiffs authorized Wells Fargo to distribute $62,212.00 to defendant Accent and $13,900.00 to defendant Kimkorp, Plaintiffs filed this action in the Superior Court for the State of California, County of San Diego, on July 13, 2010. Thereafter, plaintiffs filed a first amended complaint and Wells Fargo removed this action on the basis of federal question jurisdiction. In their FAC, plaintiffs assert causes of action for breach of contract, negligence, rescission, and violation of the Home Ownership and Equity Protection Act, HOEPA, 15 U.S.C. § 1600 et seq. The sole claim directed to defendant Wells Fargo is the HOEPA claim.

Legal Standard for Motion to Dismiss

A Rule 12(b)(6) motion tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal pursuant to Rule 12(b)(6) is proper only where there is either a "lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir .1988). "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).

After accepting as true all non-conclusory allegations and drawing all reasonable inferences in favor of the plaintiff, the Court must determine whether the complaint alleges a plausible claim to relief. See Ashcroft v. Iqbal 129 S. Ct 1937, 1950 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)(A complaint cannot survive a motion to dismiss unless it provides "sufficient factual matter, . . . to 'state a claim to relief that is plausible on its face.'"). "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." at 1949. In determining facial plausibility, whether a complaint states a plausible claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950.


1. HOEPA Claim

In their complaint, plaintiffs seek damages and rescission under HOEPA based upon Wells Fargo's alleged wrongful disbursement of funds to defendants Kunz and Accent. Specifically, plaintiffs contend Wells Fargo violated 15 U.S.C. § 1639(i) by fully paying the co-defendants prior to completion of work and without an instrument that was payable to the consumer or jointly to the consumer and the contractor:

A creditor shall not make a payment to a contractor under a home improvement contract from amounts extended as credit under a mortgage referred to in section 1602(aa) of this title, other than--(1) in the form of an instrument that is payable to the consumer or jointly to the consumer and the contractor; or (2) at the election of the consumer, by a third party escrow agent in accordance with terms established in a written agreement signed by the consumer, the creditor, and the contractor before the date of payment.

15 U.S.C. § 1639(i).

In their FAC, plaintiffs allege that on September 26, 2008, Wells Fargo "directly distributed, without the written authorization from the Plaintiffs, the sum of $62,212 to Defendant KUNZ and ACCENT and the sum of $13,9000 to KIMKORP pursuant to the terms of the aforementioned written contracts between Plaintiffs and ACCENT and KIMKORP." (FAC at 3, ¶14.) Wells Fargo contends that it was directed to distribute the funds to Kunz and Accent under the loan agreement, HUD-1 Settlement Statement, signed by plaintiffs. (Exh. C to FAC.)

As noted above, plaintiffs seek both damages and rescission under HOEPA. Claims under HOEPA are governed by the same statute of limitations as are claims under TILA. For claims seeking damages, the limitation period is one year. A borrower initially has three days following the consummation of the transaction or the delivery of the disclosure forms required under § 1635 to notify the creditor of his intent to rescind. 15 U.S.C. § 1635(a). But if the creditor either fails to provide notice of the borrower's right of rescission, or fails to make a material disclosure, the three-day period is ...

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