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Gennady Shapiro v. Bank of America

October 12, 2011



This matter comes before the Court on Defendants Bank of America, N.A. ("BANA"), PRLAP, Inc. ("PRLAP"), BAC Home Loans Servicing, LP ("BAC"), and Recontrust Company, N.A.‟s ("Recontrust") (collectively "Defendants") Motion to Dismiss ("MTD") (Doc. #16) Plaintiff Gennady Shapiro‟s ("Plaintiff") Amended Complaint (Doc. #12), pursuant to Federal Rule of Civil *fn1 Procedure 12(b)(6). Plaintiff opposes the motion (Doc. #32).


This action arises out of a non-judicial foreclosure of real 3 property located at 8120 Lone Pine Place, Granite Bay, California ("the Property"). See Am. Compl. ¶ 1. In July, 2005 Plaintiff executed a written Deed of Trust with BANA as beneficiary. Am. Compl. ¶ 17. The original trustee was PRLAP. Am. Compl. Ex. C.

In October 2010, Recontrust recorded a Notice of Default and Election to Sell Under Deed of Trust ("Notice of Default") on the Property. Am. Compl. Ex. I. Two days later, Recontrust recorded a Substitution of Trustee executed by BANA on October 25, 2010 naming Recontrust as the replacement trustee. Am. Compl. Ex. J. Subsequently, Recontrust recorded a Notice of Trustee‟s Sale, and the Property was foreclosed upon. Am. Compl. Ex. K. Plaintiff‟s Amended Complaint alleges, generally, that the foreclosure was improper.

The Complaint and supporting exhibits also indicate that the Property was subject to other liabilities involving other Defendants who recorded numerous encumbrances and other documents related to the Property. Am. Compl. ¶ 20 ("Chain of Title Problems"). The motion currently before the Court is only relevant to claims against Defendants BANA, PRLAP, BAC and Recontrust, which all arise out of the July, 2005 Deed of Trust executed by Plaintiff in BANA‟s favor and the foreclosure proceedings resulting from that instrument.

For the reasons set forth below, Defendants‟ Motion to Dismiss is GRANTED in its entirety.


A. Legal Standard 3

A party may move to dismiss an action for failure to state a 4 claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). In considering a motion to dismiss, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972). Assertions that are mere "legal conclusions," however, are not entitled to the assumption of truth. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To survive a motion to dismiss, a plaintiff needs to plead "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. Dismissal is appropriate where the plaintiff fails to state a claim supportable by a cognizable legal theory. Balistreri v. Pacifica Police Dep‟t, 901 F.2d 696, 699 (9th Cir. 1990).

Upon granting a motion to dismiss for failure to state a claim, the court has discretion to allow leave to amend the complaint pursuant to Federal Rule of Civil Procedure 15(a). "Dismissal with prejudice and without leave to amend is not appropriate unless it is clear . . . that the complaint could not be saved by amendment." Eminence Capital, L.L.C. v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003).

B. Judicial Notice

In this case, both parties submit requests for judicial notice. Generally, the Court may not consider material beyond the pleadings in ruling on a motion to dismiss for failure to state a claim. The exceptions are material attached to, or relied on by, the complaint so long as authenticity is not disputed, or matters of public record, provided that they are not subject to reasonable dispute. E.g., Sherman v. Stryker Corp., 2009 WL 2241664 at *2 (C.D. Cal. Mar. 30, 2009) (citing Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) and Fed. R. Evid. 201).

Plaintiff filed an "Exhibit Index and Exhibits A-L to Plaintiff‟s First Amended Complaint," attaching the Legal Description of Property, Grant Deed, Deed of Trust, Full Reconveyance (August 16, 2005), Full Reconveyance (August 22, 2005), Substitution of Trustee (October 20, 2005), Full Reconveyance (October 20, 2005), Deed of Realty in Trust (April 17, 2008), Notice of Default, Substitution of Trustee (October 28, 2010), Notice of Trustee‟s Sale, and Deed of Trust [Second Mortgage] (Doc. #12-2, Exs. A-L). Defendants also request that this Court take judicial notice of the Deed of Trust, Notice of Default, Substitution of Trustee (October 28, 2005), and Notice of Trustee‟s Sale. See Defs‟ Request for Judicial Notice ("RJN"), Doc. #16-2, Exs. A-D. As Plaintiff did not object to Defendants‟ request, and because he relies on these documents in his Complaint, this Court will GRANT Defendants‟ request and take judicial notice of the Deed of Trust, Substitution of Trustee (October 28, 2005), Notice of Default, and Notice of Trustee‟s Sale (Defs.‟ RJN, Exhibits A-D) in accordance with Federal Rule of Evidence 201.

Plaintiff also included a request for judicial notice in his Opposition to Defendants‟ Motion to Dismiss, asking this Court to consider two consent orders entered by federal agencies and signed by personnel associated with various defendants in this litigation (Doc. #32-1, Exs. A-B). These documents are irrelevant to the pending motion to dismiss, and this case, and Plaintiff‟s request as to Exhibits A and B to his Opposition is accordingly DENIED.

See Fed. R. Evid. 201.

C. Motion to Dismiss

1. Defendant Recontrust‟s Standing to Foreclose

As a threshold matter, Plaintiff argues that Recontrust did 9 not have standing to initiate proceedings pursuant to California‟s non-judicial foreclosure statutes. Whether or not Reconstruct was the correct entity to proceed with the foreclosure bears on multiple causes of action in Plaintiff‟s Amended Complaint. The Court addresses this preliminary issue first.

Plaintiff specifically alleges that Recontrust was not properly made trustee prior to the October 26, 2010 filing of the Notice of Default because the Substitution of Trustee was not recorded until two days later on October 28, 2010. Defendant responds that the Substitution of Trustee does not need to be recorded to be valid.

Cal. Civ. Code § 2934(a)(1) clearly states that a trustee "may be substituted by the recording in the county in which the property is located of a substitution executed. . . ." Cal. Civ. Code § 2934(a)(1). The executed substitution must be acknowledged by either all of the beneficiaries to the deed of trust or at least 50% of the beneficiaries of a series of notes secured by the property. Cal. Civ. Code §§ 2934(a)(1)(A)-(B). In order to proceed with a non-judicial foreclosure, a notice of default must be recorded by the trustee, mortgagee, or beneficiary of the deed of trust. Cal. Civ. Code § 2924(a)(1). "The statutory 2 requirements must be strictly complied with, and a trustee's sale 3 based on a statutorily deficient notice of default is invalid."

Anderson v. Heart Fed. Sav. & Loan Ass'n, 256 Cal. Rptr. 180, 185 (Ct. App. 1989) (internal citations omitted).

In this case, the Court relies on the facts as stated in Plaintiff‟s Amended Complaint and the documents attached to his 8 complaint, which were also included in Defendants‟ request for 9 judicial notice. Plaintiff alleges that Recontrust was substituted as trustee when Recontrust recorded the Notice of Substitution on October 28, 2010, two days after the Notice of Default was filed on October 26, 2010. Defendants‟ response that recording the notice of substituted trustee was not necessary fails in light of the statutory requirement to record the notice. Cal. Civ. Code § 2934a(a)(1). Further, Plaintiff‟s argument that a Substitution of Trustee must be recorded is supported by California case law. Pro Value Props., Inc. v. Quality Loan Serv. Corp., 88 Cal.Rptr.3d 381, 383 (Ct. App. 2009) ("[The purported trustee] was not the trustee named in the deed of trust, and so was required to record a Substitution of Trustee pursuant to Civil Code section 2934a."); Anderson, 256 Cal. Rptr. at 185 (the statutory notice requirements must be strictly complied with).

While the Substitution of Trustee appointing Reconstruct as trustee on the Deed of Trust was recorded two days after the Notice of Default, this deficiency does not necessarily entitle Plaintiff to relief. In Ferguson v. Avelo Mortg., LLC, as modified on June 1, 2011, the purported trustee filed a notice of default before it was actually substituted as trustee. 126 Cal.Rptr.3d 586, 595 (Ct. App. 2011). The problem was cured three months later by the time the notice of sale was recorded, and the Court of Appeals upheld the resulting sale. Id. Further, another California court held that a one minute lag between recording a substitution of trustee and a notice of default was not a sufficient basis to void an 6 otherwise proper notice of default. U. S. Hertz, Inc. v. Niobrara Farms, 116 Cal. Rptr. 44, 55 (Ct. App. 1974). In order for a plaintiff to state a claim based on a tardily recorded substitution of trustee, the plaintiff‟s complaint must allege some prejudice resulting from the deficiency. Id.; Pedersen v. Greenpoint Mortgate Funding, Inc., No. S--11--0642 KJM EFB, 2011 WL 3818560, at *21 (E.D. Cal. Aug. 29, 2011). In the present matter, Plaintiff‟s complaint does not allege that his rights were prejudiced by the two day delay in recording the Substitution of Trustee. Without such an allegation, Plaintiff has not pleaded that the Notice of Default was statutorily deficient. U. S. Hertz, 116 Cal. Rptr. at 55.

For these reasons, the Court finds that Plaintiff has failed to allege that Defendant Reconstruct lacked standing to initiate foreclosure proceedings against the Property.

2. Federal Claims for Relief

a. Violations of Truth in Lending Act

Plaintiff alleges that Defendants violated the Truth in Lending Act ("TILA"), 15 U.S.C. § 1605, and Regulation Z, 12 C.F.R. §§ 226.4, 226.18, by failing to make required disclosures. Am. Compl. ¶¶ 55-56. Defendants argue that Plaintiff failed to file his claim within the time period required by TILA, and that the claim was not properly pleaded.

Plaintiff lists a number of disclosures that Defendants allegedly failed to make, as required by TILA, when the loan was created. He re-lists the alleged faulty disclosures essentially 4 without argument in his Opposition. Am. Compl. ¶ 56; Opp., at 16.

Defendants‟ argument rests on a conclusory statement that "Plaintiff generically refers to the fact that "certain charges‟ were [sic] failed to be disclosed," but Defendants do not address the specific deficiencies identified in the Amended Complaint.

MTD, at 5. While the deficiencies identified by Plaintiff might be sufficient to defeat this motion to dismiss, Defendants also raise the statute of limitations and Plaintiff‟s failure to plead tender to support dismissal, which makes it unnecessary for the Court to determine if the alleged nondisclosures state a claim upon which relief can be granted.

The statute of limitations for a TILA damages claim is one year from the occurrence of a violation. 15 U.S.C. § 1640(e). Under 15 U.S.C. § 1635(f), TILA rescission claims expire three years after the date of consummation of the transaction, or upon sale of the property, whichever occurs first. The limitations periods for both damages and rescissions actions run from the date of consummation of the transaction. Wadhwa v. Aurora Loan Services, LLC, 2011 WL 1601593, *2 (E.D. Cal. April 27, 2011) (citing King v. California, 784 F.2d 910, 915 (9th Cir.1986)).

In this case, Plaintiff filed his original Complaint on March 1, 2011 more than five years after the loan was executed in July 2005. Thus, the Court finds that the filing of the present action was outside of both TILA limitations periods.

Plaintiff does not disagree that the action was filed outside of the applicable limitations period, but argues that the limitations period should be tolled by the Court. Plaintiff‟s argument is that the statute of limitations should be tolled 5 because he is a lay person unfamiliar with federal and state law.

He also argues that as an alleged victim of fraud, he did not have a reasonable opportunity to discover Defendant‟s fraudulent activities with respect to the loan. Opp., at 11-12.

In the Ninth Circuit, "[e]quitable tolling may be applied if, despite all due diligence, a plaintiff is unable to obtain vital information bearing on the existence of his claim." Santa Maria v. Pacific Bell, 202 F.3d 1170, 1178 (9th Cir. 2000) ...

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