The opinion of the court was delivered by: Hon. Dana M. Sabraw United States District Judge
ORDER GRANTING IN PART PLAINTIFFS' THIRD AMENDED COMPLAINT BY DEFENDANTS SELECT PORTFOLIO SERVICING, AND MTGLQ INVESTORS, LP AND DENYING IN PART MOTIONS TO DISMISS
Pending before the Court are motions to dismiss Plaintiffs' Third Amended Complaint ("TAC") by (1) Goldman Sachs Mortgage Company ("Goldman") and (2) Litton Loan Servicing ("Litton") and MTGLQ Investors, LP ("MTGLQ" and, with Goldman and Litton, "Defendants"). (Docs. 82-83.) For the following reasons, Goldman's motion to dismiss is granted and Litton and MTGLQ's motion to dismiss is granted in part and denied in part.
On November 7, 2005, Plaintiffs obtained a refinance mortgage loan from Novelle Financial Services in the amount of $649,000.00, secured by a Deed of Trust on the subject property, which Plaintiff Betty Bryan purchased in 1950. (TAC ¶¶ 2, 46; MTGLQ/Litton RJN Ex. 1.)*fn1 Plaintiffs allege they sent a notice of rescission to certain Defendants pursuant to the Truth in Lending Act, dated February 5, 2007. (TAC at ¶¶ 29, 40, 111, 137, 140.) Subsequent to the alleged notice of rescission, Plaintiffs made an additional approximately $80,000 in payments to Defendant Select Portfolio Servicing, Inc. ("SPS"). (Id. at ¶¶ 282-83.) Nonetheless, a Notice of Default was recorded on June 19, 2008. (MTGLQ/Litton RJN Ex. 3.) Plaintiffs filed a Complaint in San Diego Superior Court on November 3, 2008. (TAC ¶¶ 37, 49.) An Assignment of the Deed of Trust transferring the Deed to MTGLQ Investors, LP was signed on October 21, 2008 and recorded on December 15, 2008. (MTGLQ/Litton RJN Ex. 2.) Plaintiff Betty Bryan filed for Chapter 13 bankruptcy on November 4, 2008. (TAC ¶ 122.) On March 23, 2009, Plaintiffs Betty Bryan and Catherine Bryan recorded a Grant Deed deeding their interest in the subject property to Kokopelli Community Workshop Corporation. (MTGLQ/Litton RJN Ex. 5.) A Trustee's Deed Upon Sale was recorded on October 30, 2009, granting to MTGLQ Investors, LP all interest in the subject property under the Deed of Trust. (MTGLQ/Litton RJN Ex. 6.) This action was removed to this Court on August 2, 2010. (Doc. 1.) Plaintiffs subsequently filed the TAC on October 8, 2010. (Doc. 9.)
The TAC includes 18 claims for relief: (1) violation of the Truth in Lending Act ("TILA"), (2) violation fo the California Rosenthal Fair Debt Collection Practices Act ("RFDCPA"), (3) violation of the Fair Debt Collection Practices Act ("FDCPA"), (4) wrongful foreclosure, (5) violation of the Real Estate Settlement Procedures Act ("RESPA"), (6) breach of fiduciary duty, (7) fraud--intentional misrepresentation, (8) fraud--negligent misrepresentation, (9) violation of California Business and Professions Code § 17200, (10) breach of contract, (11) breach of implied covenant of good faith and fair dealing, (12) violation of California Civil Code § 2923.5, (13) quiet title, (14) elder abuse- violation of Welfare and Institutions Code § 15610, (15) rescission, (16) accounting, (17) to set aside trustee's sale, and (18) to cancel the trust deed.
Defendants Bill Koch and SPS filed a motion to dismiss Plaintiffs' TAC on October 28, 2010. (Doc. 13.) On January 24, 2011, Defendant Stephan Wichmann filed a motion to dismiss the TAC. (Doc. 36.) On February 22, 2011, the Court issued an Order granting Defendant Stephen Wichmann's unopposed motion to dismiss the TAC with prejudice and granting in part and denying in part the motion to dismiss filed by Defendants Bill Koch and SPS. (Doc. 46.) The Court granted Plaintiffs leave to file a Fourth Amended Complaint within 20 days of the date of the Order, which Plaintiffs elected not to do. The Court issued an Order on April 14, 2011 dismissing Plaintiff Kopopelli Community Workshop Corporation from the action in light of Plaintiffs' failure to timely substitute in new counsel and resulting pro se status and instructing Defendants to file a response to the TAC by May 2, 2011. (Doc. 68.) Accordingly, Defendants filed the instant motions to dismiss on May 2, 2011. (Docs. 82-83.) Plaintiffs filed an opposition to the motions and Defendants each filed a reply. (Docs. 100, 102-03.)
A party may move to dismiss a claim under Rule 12(b)(6) if the claimant fails to state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). The Federal Rules require a pleading to include a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The Supreme Court, however, recently established a more stringent standard of review for pleadings in the context of 12(b)(6) motions to dismiss. See Ashcroft v. Iqbal, ___ U.S. ___, 129 S. Ct. 1937 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). To survive a motion to dismiss under this new standard, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 570). "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." Id. (citing Twombly, 550 U.S. at 556). "Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950 (citing Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007)). The reviewing court must therefore "identify the allegations in the complaint that are not entitled to the assumption of truth" and evaluate "the factual allegations in [the] complaint to determine if they plausibly suggest an entitlement to relief." Id. at 1951.
As an initial matter, Goldman argues Plaintiffs' conclusory allegations that Goldman is an "investor" or "creditor" with respect to their mortgage are insufficient to support any of the claims stated against Goldman in the TAC and such allegations are refuted by the documents attached to the TAC, none of which indicate Goldman is connected to Plaintiffs' mortgage in any way. Goldman argues "GSAMP Trust 2006-HE3," which is a separate entity from Goldman and which has not been named by Plaintiffs as a defendant in this action, owned Plaintiffs' loan for a short while, but there is no evidence Goldman was in any way involved with Plaintiffs' loan at any point. On reply, Goldman further argues, even if Goldman owned Plaintiffs' loan for a brief period as it was transitioned from the previous owner to the GSAMP Trust 2006-HE3, as Plaintiffs argue in their opposition, such brief ownership is not sufficient to support the claims against Goldman in the TAC. In the TAC, Plaintiffs allege Goldman is liable to them based on its relationships with other named defendants. (See TAC at 2 (Plaintiffs are "alleging that their federal and state rights were violated, against: GOLDMAN SACHS BANK d/b/a MTGLQ INVESTORS LP. GOLDMAN SACHS BANK AS ACTING TRUSTEE ON BEHALF OF THE HOLDERS OF THE GSAMP TRUST 2006-HE3 MORTGAGE PASS THRU CERTIFICATES SERIES 2006-HE3. . . . DEMARCO FLETCHER, ACTING IN HIS CAPACITY AS SALES AGENT FOR GOLDMAN SACHS BANK. GOLDMAN SACHS CAPITAL ASSOCIATION . . . STEPHEN WICHMANN IN HIS CAPACITY AS ATTORNEY AND AGENT FOR GOLDMAN SACHS BANK."); see also id. at ¶¶ 29, 33, 35.) Plaintiffs first allege "Goldman Sachs Bank was and is acting on behalf of the trust beneficiary, AS ACTING TRUSTEE ON BEHALF OF THE HOLDERS OF THE GSAMP TRUST 2006-HE-3 MORTGAGE PASS THRU CERTIFICATES." (TAC ¶¶ 34, 89.) However, LaSalle Bank is the acting trustee of holders of the GSAMP Trust 2006-HE-3, as stated in the Corporate Assignment of Deed of Trust. (Goldman RJN Ex. 3.)
Plaintiffs also allege certain other defendants were acting as agents of Goldman. "To allege an agency relationship, a plaintiff must allege: (1) that the agent or apparent agent holds power to alter legal relations between principal and third persons and between principal and himself; (2) that the agent is a fiduciary with respect to matters within scope of agency; and (3) that the principal has right to control the conduct of the agent with respect to matters entrusted to him." Palomares v. Bear Stearns Res. Mrtg. Corp., No. 07cv1899 WQH (BLM), 2008 WL 686683, at *4 (S.D. Cal. Mar. 13, 2008)(citation omitted). Plaintiffs allege "they will provide reasonable discovery to the Court and expert witness testimony substantiating and proving the principal agent relationship between mortgage loan broker, Defendant Demarco Fletcher and Defendant Select Portfolio, Defendant Litton Loan Service, and Defendant Goldman Sachs Bank." (TAC ¶ 57.) However, they do not allege any facts in support of their claim of an agency relationship between Goldman and other entities in the TAC.
Similarly, Plaintiffs' allegations that Goldman is the parent company of other entities are insufficient to support claims against Goldman. (See id. at ¶¶ 18 ("MTGLQ Investor, L.P. . . . is a limited partnership of unknown capacity directly and wholly owned by Goldman Sachs Bank"), 19 ("Litton Loan Service . . . is a mortgage servicer of unknown capacity directly and wholly owned by Goldman Sachs Bank"), 21 ("Select Portfolio Servicing Incorporated . . . is directly owned by defendant Goldman Sachs Bank").) A parent company is not generally liable for the acts of its subsidiaries merely because of the corporate relationship. See, e.g., Walker v. Signal Cos., 84 Cal. App. 3d 982, 1001 (1978)("more is required than solely a parent-subsidiary corporate relationship to create liability of a parent for the actions of its subsidiary"). Plaintiffs here have not alleged facts supporting a claim for liability on the basis of alter ego. The Court agrees Plaintiffs have failed to make sufficient factual allegations as to conduct by Goldman and have failed to allege facts supporting a finding of Goldman's vicarious liability for the actions of other defendants. Nonetheless, the Court addresses each of Plaintiffs' claims below.
Plaintiffs allege they were not provided the requisite disclosures under TILA at the time of their loan, thereby extending their right of rescission to three years from the date of the loan; they subsequently exercised their right to rescind the loan pursuant to TILA by sending Defendants a written notice of rescission; and Defendants acted wrongfully with regard to Plaintiffs' alleged rescission. (TAC ¶¶ 39-41, 43, 46, 49, 74, 111, 135, 140, 146-47.) A claim for damages pursuant to TILA is subject to a one-year statute of limitations, which generally runs from the consummation of the transaction at issue. 15 U.S.C. § 1640(e); King v. California, 784 F.2d 910, 915 (9th Cir. 1986). Claims of rescission under TILA are subject to a maximum three-year statute of limitations. 15 U.S.C. § 1635(f)("An 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, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor."); 12 C.F.R. § 226.23(a)(3). Plaintiffs' loan closed on or about November 18, 2005.
Contrary to Plaintiffs' assertion, rescission under TILA is not automatic unless the creditor acquiesces to the rescission, which clearly did not occur here. Rather, "rescission under § 1635(b) is an ongoing process consisting of a number of steps." Yamamoto v. Bank of New York, 329 F.3d 1167, 1173 (9th Cir. 2003). "[U]nder the statute and the regulation, the security interest 'becomes void' only when the consumer 'rescinds' the transaction. In a contested case, this happens when the right to rescind is determined in the borrower's favor." Id. at 1172. Nonetheless, Plaintiffs allege their right to rescind was extended to three years from the consummation of the loan due to inadequate disclosures under TILA and that they timely exercised their right to rescind by notifying Defendants of their intent to rescind in writing. (See, e.g., TAC ¶ 150(b).)
Litton and MTGLQ argue the TILA and rescission claims fail as to them because they were not involved with Plaintiffs' loan at the time of origination and were therefore not obligated to make disclosures, Plaintiffs lack standing to bring a rescission claim against them, Plaintiffs did not send a timely rescission notice to them, and the claims are time-barred. Plaintiffs allege "the servicing of [the] loan had been transferred to Litton Loan Service [sic]" from SPS in October 2008. (TAC ¶ 50(h).) MTGLQ did not become involved with the loan until October 21, 2008, when all beneficial interest under the Deed of Trust was transferred to it. (MTGLQ/Litton RJN Ex. 2.) Litton and MTGLQ argue Plaintiffs, despite alleging that they sent a notice of rescission to all Defendants on February 5, 2007 (TAC ¶ 150(b)), could not have provided such notice to them as they were not yet involved with Plaintiffs' loan until it assumed the role of servicer to Plaintiffs' loan in October 2008. Plaintiffs also allege to have given notice of their rescission "by and through this Complaint filed on November 3, 2008." (Id. at ¶ 147(g).) Litton and MTGLQ argue there are no allegations that they were served with the November 2008 pleading and they were not named as Defendants at that time. (Doc. 12-1 at pg. 85.) Rather, Plaintiffs served MTGLQ on September 16, 2009, and served Litton after it was named in the TAC, filed on October 14, 2010. (Doc. 12.) Litton and MTGLQ argue any notice they received of Plaintiffs' rescission via service of the Complaint or a notice of rescission was well beyond the three-year period of rescission permitted under TILA. Litton and MTGLQ further argue any claim by Plaintiffs for damages asserted pursuant to TILA in the TAC is untimely under the one-year statute of limitations applicable to such claims, and any claim for rescission is untimely as to them under the maximum three-year statute of limitations for rescission.
Litton and MTGLQ's arguments are unpersuasive at the motion to dismiss stage. Plaintiffs allege they sent Defendants a timely notice of rescission and timely filed a Complaint alleging facts in support of their claim to rescission. Plaintiffs further allege, "[o]n June 12, 2009, plaintiff gave notice of this lawsuit and Notice of Rescission to Goldman Sachs d/b/a MTGLQ Investors L.P., therein disputing the amount of their alleged loan, and duly delivered a Qualified Notice of Rescission to Goldman Sachs via their subsidiary, Defendant MTGLQ Investors, L.P." (TAC ¶ 66; Opp. Ex. VII.) Plaintiffs also allege Litton responded to their notice of rescission and qualified written request for information as to their loan on March 9, 2009 and that "Plaintiff's qualified Notice of Rescission was duly delivered to Defendant Select, Defendant Litton, Defendant Goldman Sachs d/b/a/ MTGLQ Investors L.P. By [sic] certified return receipt mail on over 16 separate occasions from February 5, 2007 until September 2009." (TAC ¶¶ 105, 111.) It is not necessary for the Court to have finally determined Plaintiffs' right to rescission within the three-year period, nor for Plaintiffs to have given MTGLQ notice of their claim to rescission within the three-year period, which would have been incredibly difficult, if not impossible, given Plaintiffs' Deed of Trust was assigned to MTGLQ just weeks before the three-year period expired and was not recorded until more than three years after the consummation of Plaintiffs' loan. Rather, Plaintiffs' allege they timely notified Defendants of their intent to rescind; timely filed a Complaint alleging facts in support of their claim to rescission; subsequently notified Defendants, including MTGLQ and Litton, of their claim to rescission prior to the foreclosure sale of their property; and Defendants acted improperly in light of their knowledge of Plaintiffs' claim of rescission. These allegations are sufficient to survive a motion to dismiss as to a claim of rescission under TILA and for violations of TILA in connection with the alleged rescission.
Moreover, Plaintiffs also allege a claim for rescission pursuant to California Civil Code § 1689(b)(1) on the basis that Plaintiffs consent to the mortgage was "obtained through duress, menace, fraud, or undue influence." (See TAC ¶¶ 52, 60.) MTGLQ and Litton do not address Plaintiffs' claim for rescission of the mortgage on this basis. Accordingly, their motion to dismiss Plaintiffs' claims for violation of TILA and for rescission is denied.
Goldman similarly argues there are no factual allegations in the TAC demonstrating that Goldman was involved in the origination of the loan or acted wrongfully with regard to Plaintiffs' purported rescission of the loan. It further argues any claim pursuant to TILA is time-barred as to it because no notice of Plaintiffs' alleged rescission was given to Goldman until October 14, 2010, more than five years after the consummation of Plaintiffs' loan. As discussed above, there are no allegations in the TAC that Goldman itself received notice of Plaintiffs' intended rescission and failed to respond appropriately, or that a loan exists from Goldman to Plaintiffs to be rescinded. Accordingly, Goldman's motion to dismiss this claim is granted.
C. Debt Collection Practices Acts
Plaintiffs allege Defendants violated the California Rosenthal Fair Debt Collection Practices Act ("RFDCPA") by (1) "falsely stating the amount of a debt," (2) "increasing the amount of a debt by including amounts not permitted by law or contract," (3) "improperly foreclosing upon the Subject Property," and (4) "using unfair and unconscionable means in an attempt to collect a debt." (TAC ¶ 152.) The RFDCPA serves to "prohibit debt collectors from engaging in unfair or deceptive acts or practices in the collection of consumer debts and to require debtors to act fairly in entering into and honoring such debts." Arikat v. JP Morgan Chase & Co., 430 F. Supp. 2d 1013, 1026 (N.D. Cal. 2006)(citing Cal. Civ. Code § 1788.1)(emphasis omitted). However, the RFDCPA only governs the conduct of a "debt collector," which under the statute is defined as "any person who, in the ordinary course of business, regularly, and on behalf of himself or herself or others, engages in debt collection." Cal Civ. Code. § 1788.2(c). Similarly, the Fair Debt Collection Practices Act ("FDCPA") applies only to "debt collectors", as defined by the statute. See 15 U.S.C. § 1692a(6)(defining "debt collector" as any person "who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another").
Litton and MTGLQ argue Plaintiffs' claims for violation of the RFDCPA and FDCPA fail because the statutes do not apply to collection efforts related to mortgage loans and the non-judicial foreclosure process. Although the Court has previously recognized some criticism of the general rule in the Ninth Circuit that mortgage foreclosure does not constitute debt collection within the meaning of the Acts (see Feb. 22 Order at 5), the Court agrees with Defendants that the general rule should apply here. See, e.g., Gardner v. Am. Home Mortg. Serv., Inc., 691 F. Supp. 2d 1192, 1198 (E.D. Cal. 2010); Tina v. Countrywide Home Loans, Inc., 08cv1233 JM (NLS), 2008 WL 4790906, at *7 (S.D. Cal. Oct. 30, 2008). As ...