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Chang Bee Yang, An Individual; and Lau Yang, An Individual v. Sun Trust Mortgage

August 31, 2011

CHANG BEE YANG, AN INDIVIDUAL; AND LAU YANG, AN INDIVIDUAL,
PLAINTIFFS,
v.
SUN TRUST MORTGAGE, INC., A VIRGINIA CORPORATION; AND DOES 1 THROUGH 25, INCLUSIVE, DEFENDANT.



ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

[Doc. #41]

INTRODUCTION

On June 15, 2011, Plaintiffs Chang Bee Yang and Lau Yang filed a Second Amended Complaint ("SAC") against Defendant SunTrust Mortgage, Inc. ("SunTrust").*fn1 In the SAC, Plaintiffs allege eight causes of action against SunTrust, which relate to a Residential Construction Loan Agreement ("RCLA") entered into between Plaintiffs and SunTrust. SunTrust moves to dismiss the SAC pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons that follow, the motion will be granted.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Johnson v. Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th Cir. 2008); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In reviewing a complaint under Rule 12(b)(6), all allegations of material fact are taken as true and construed in the light most favorable to the non-moving party. Marceau v. Blackfeet Hous. Auth., 540 F.3d 916, 919 (9th Cir. 2008); Vignolo v. Miller, 120 F.3d 1075, 1077 (9th Cir. 1999). The Court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1056-57 (9th Cir. 2008); Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). As the Supreme Court has explained:

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, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

To avoid a Rule 12(b)(6) dismissal, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face[.]" Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010) (citations omitted). "In sum, for a complaint to survive a motion to dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. United States Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009).

If a Rule 12(b)(6) motion to dismiss is granted, "[the] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995). In other words, leave to amend need not be granted when amendment would be futile. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).

ALLEGED FACTS

On December 16, 2006, Plaintiffs and SunTrust entered into a RCLA. SAC at ¶ 8. Under the RCLA, SunTrust agreed to loan Plaintiffs $742,450.00 in order to purchase real property located at 10966 E. Promontory Way, Clovis CA, 93619. Id. at ¶¶ 8-9. Plaintiffs used $200,000.00 of the loan proceeds to purchase the lot and the remaining $542,450.00 for construction. Id. at ¶ 11. Plaintiffs hired Sierra Custom Homes Inc. ("Contractor") to construct the residential home on the property. Id. at ¶ 10.

Pursuant to the RCLA, the loan proceeds were to be deposited into an account held by SunTrust. Id. at ¶ 12. According to Paragraph 2 of the RCLA, the loan proceeds were to be advanced to Contractor by SunTrust when Contractor reached stages of completed work. Id. Plaintiffs were to supervise Contractor and inform SunTrust about Contractor's need for monies under the RCLA. Id.

Paragraph 7 of the RCLA required that Plaintiffs irrevocably appoint SunTrust as "Power of Attorney" and allowed SunTrust to make payments directly to Contractor, which was in disregard of other provisions of the RCLA. Id. at ¶ 13. At SunTrust's request, Plaintiffs executed a Disbursement Authorization whereby SunTrust was authorized to distribute funds directly to Contractor. Id. at ¶ 14. SunTrust also advised Plaintiffs by written correspondence that SunTrust was responsible for coordinating inspections and disbursing funds throughout the construction phase. Id. at ¶ 15.

SunTrust hired and assigned Michael J. Carter ("Carter"), a California licensed real estate appraiser, to evaluate and inspect the work on the construction project and each draw request from Contractor. Id. at ¶ 16. Carter, at all relevant times, was an agent of SunTrust. Id. There were fifteen total draw requests made by Contractor. Id. at ¶ 17. Carter would evaluate each draw request by Contractor and then submit them to SunTrust. Id. at ¶¶ 16, 22.

Plaintiffs allege that SunTrust and Carter misrepresented to Plaintiffs through the Draw Requests and Inspection Reports prepared by Carter. Id. at ¶ 20. Specifically, Plaintiffs allege SunTrust and Carter made the following misrepresentations:

a. Draw Number 11 funded on February 11, 2008: Appraiser indicated that the inside doors, exterior windows and doors and permanent roof were 100% complete on the residence;

b. Draw Number 13 funded on April 25, 2008: Appraiser indicated that 100% of the interior paint was completed on the residence; and

c. Draw Number 14 funded on May 21, 2008: Appraiser indicated that the exterior paint was 100% complete on the residence (except for touch up); that the hood and oven were not on site, but all other appliances were on site but not installed; that the level of completion with respect to the appliances was 60%; and that the landscaping was complete.

Id. SunTrust and Carter made these representations despite the fact that Carter had knowledge that:

a. As of February 11, 2008: At least one pair of interior double doors had not been supplied or installed in the residence; one exterior door had not been supplied or installed; no interior or exterior door knobs had been installed or supplied; two garage doors and openers had not been supplied; four (4) windows had not been supplied or installed; and the permanent roof was not completed;

b. As of April 25, 2008: Only the interior primer had been completed and no paint had been applied to the interior of the residence; and

c. As of May 21, 2008: The exterior paint of the residence was not complete, only the initial stucco had been applied; no appliances were on site other than the hood and oven; no landscaping had been completed.

Id. at ¶ 21.

SunTrust and Carter intended to induce Plaintiffs to rely on these misrepresentations by issuing statements to Plaintiffs between December of 2006 until completion of the construction project for payment of mortgage interest. Id. at ¶ 22. SunTrust's statements were based upon the amount of monies advanced to Contractor as a result of the Inspection Reports and Draw Requests submitted by Carter to SunTrust. Id.

Plaintiffs allege that each draw request was paid by SunTrust to Contractor without Plaintiffs' authorization or approval. Id. at ¶ 17. Contractor failed to complete the work paid by SunTrust. Id. at ¶ 18. Plaintiffs have been forced to expend in excess of $100,000.00 to complete the project after SunTrust paid Contractor in an amount equal to approximately ninety-six (96%) percent of the construction project cost when only approximately seventy-five (75%) percent of the construction project was actually complete. Id. at ¶ 33.

DISCUSSION

A. Fraud and Negligent ...


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