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Michael Horton, An Individual; Cathie L. Horton, An Individual v. California Credit Corp. Retirement Plan

December 7, 2011

MICHAEL HORTON, AN INDIVIDUAL; CATHIE L. HORTON, AN INDIVIDUAL,
PLAINTIFFS,
v.
CALIFORNIA CREDIT CORP. RETIREMENT PLAN, AN ENTITY OF UNKNOWN FORM; FORECLOSURE SPECIALISTS,
INC., DOING BUSINESS AS ZENITH TRUSTEE
SERVICES, A CALIFORNIA CORPORATION; DOES 1-10, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court

ORDER: (1) GRANTING IN PART AND DENYING IN PART PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT, [Doc. No. 66]; (2) GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT, [Doc. No. 67].

This is a mortgage case brought by Plaintiffs Michael and Cathie Horton for alleged violations of the Truth in Lending Act ("TILA") and California's Rosenthal Fair Debt Collection Practices Act ("RFDCPA"). Defendant California Credit Corp. Retirement Plan ("CCCRP") is the only remaining Defendant. Currently before the Court is Plaintiffs' Motion for Partial Summary Judgment and Defendant's Motion for Summary Judgment, or in the Alternative, Partial Summary Judgment. Having considered the parties' arguments, and for the reasons set forth below, the Court GRANTS Plaintiffs' motion for summary judgment as to: (1) count one of the first cause of action, seeking rescission under TILA; (2) the third cause of action, seeking to quiet title; and (3) the fourth cause of action for violations of the California's unfair competition law. Furthermore, the Court GRANTS Defendant's motion for summary judgment as to: (1) count two of the first cause of action, seeking damages under TILA; and (2) the second cause of action for violations of the RFDCPA. Finally, the Court DENIES the parties' motions for summary judgment in all other respects.

BACKGROUND

I. Factual background

Plaintiffs are the married owners and occupants of 10272 Rancho Carmel Drive, San Diego, California 92128 ("the Property"). On November 10, 2006, Plaintiffs entered into a Home Equity Line of Credit Agreement ("the Note") with Defendant CCCRP for a total amount of $70,000. The Note was secured by a California Open-End Deed of Trust ("Deed of Trust") in second position against the Property. The loan was primarily for personal, family, and household purposes. The amount advanced to Plaintiffs was approximately $60,000 to $65,000.

During the loan consummation, Plaintiffs received and signed numerous documents. Among the documents was a Notice of Right to Cancel ("NRC") form. (See Henry Decl. ISO Def.'s MSJ, Ex. C [Doc. No. 67-4].) The NRC form informed Plaintiffs that they were "entering into a transaction that will result in a security interest in [CCCDP's] favor in [Plaintiff's] home" and that they had "a legal right under Federal Law to cancel [that] transaction, without any cost, within three business days from whichever of the following events occurs last":

(1) the date that you sign the Note & Trust Deed, the recording of which will create a security interest in your home; that date is: ___11/10/06___; or

(2) the date you received your Truth In Lending disclosures; or

(3) the date you received this Notice Of Right To Cancel. (Id.) The NRC form did not contain a specific numeric date upon which Plaintiffs' right to cancel would expire. Rather, the NRC form included the following explanation:

A business day for the purpose of your right of rescission is all calendar days except Sundays and holidays. The holidays that are recognized for this purpose are New Year's Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day. For example, if you sign the Note and Trust Deed on a Thursday, then your right to rescind expires at midnight on the following Monday, unless that Monday should be a recognized holiday, then your right to rescind would expire at midnight on the following Tuesday. If you sign the Note and Trust Deed on a Monday, then your right to rescind would expire at midnight on the following Thursday.

(Id.) At the very end, the NRC form stated: "The undersigned hereby acknowledge(s) receipt of two copies of the above NOTICE OF RIGHT TO CANCEL." (Id.) The NRC form then provided a space for Michael Horton to sign and a space for Cathie Horton to sign. (Id.)

Defendant alleges that from September 2007 to August 2008, Plaintiffs failed to pay at least nine monthly statements. (See Henry Decl., Ex. F.)

Plaintiffs allege that on September 5, 2008, they mailed their regular monthly payment to Defendant. (Cathie Horton Decl. ISO Pl.'s MSJ, ¶ 6 [Doc. No. 66-3].) Defendant acknowledges receiving on September 10, 2008 a check from Plaintiffs in the amount of $741.00, but disputes that this was Plaintiffs' "regular monthly payment." [Doc. No. 69-2, ¶ 14.] On September 8, 2008, Plaintiffs received a letter from Zenith Trustee Services indicating that Plaintiffs' loan was in foreclosure. On September 11, 2008, Defendant returned Plaintiffs' September 5 payment to Plaintiffs with a letter stating that the "reason for the return is that [Plaintiffs'] file has been forwarded to Zenith Trustee Services to initiate foreclosure proceedings." On September 30, 2008, Plaintiffs mailed two checks in an attempt to bring the loan payments current. The checks were returned with a letter stating that the amounts were insufficient to bring the loan current.

On September 3, 2008, Defendant recorded a Notice of Default against the Property. On November 25, 2008, the first deed holder Chase Home Financial LLC ("Chase") also recorded a Notice of Default. On November 28, 2008, Plaintiffs mailed a Notice of Rescission of Loan Transaction ("Rescission Notice") to Defendant and to Zenith Trustee Services, seeking to rescind the loan and indicating readiness to discuss any tender obligations. (Raymond Decl. ISO Pl.'s MSJ, Ex. DLR-A [Doc. No. 66-4].) On February 9, 2009, Defendant recorded a Notice of Trustee's Sale against the Property, setting the sale for March 4, 2009. Subsequently, Chase also recorded a Notices of Trustee's Sale-on February 27, 2009 and on June 21, 2010.*fn1

II. Procedural background

Plaintiffs filed their complaint on February 13, 2009, and shortly thereafter moved for a temporary restraining order ("TRO") and a preliminary injunction to stay the foreclosure proceedings. This Court granted the TRO on February 25, 2009, and granted the preliminary injunction on March 16, 2009. The preliminary injunction is still in place.

On August 13, 2009, the Court denied Defendant's motion to compel arbitration and granted in part and denied in part Defendant's motion to dismiss the complaint. Plaintiffs filed their Verified First Amended Complaint ("VFAC") on September 4, 2009, alleging four causes of action: (1) rescission and damages under TILA; (2) violations of the RFDCPA; (3) quiet title; and

(4) violation of California's unfair competition law ("UCL"). Defendant filed an answer to the VFAC on September 24, 2009.

On September 22, 2010, Plaintiffs filed a Notification of Bankruptcy. Based on that notification, the Court automatically stayed this case and denied as moot Defendant's motion for summary judgment and Plaintiffs' motion for partial summary judgment. On September 26, 2011, having received Plaintiffs' notice of bankruptcy discharge, the Court re-opened the action.

The parties have now filed their respective motions for summary judgment, oppositions, and replies. Plaintiffs seek partial summary judgment on the first, third, and fourth causes of action. Defendants seek summary judgment on all causes of action or, in the alternative, partial summary judgment. Both Plaintiffs and Defendants also filed evidentiary objections.*fn2

LEGAL STANDARD

Summary judgment is proper where the pleadings and materials demonstrate "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A material issue of fact is a question that a trier of fact must answer to determine the rights of the parties under the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.

The moving party bears "the initial responsibility of informing the district court of the basis for its motion." Celotex, 477 U.S. at 323. To satisfy this burden, the movant must demonstrate that no genuine issue of material fact exists for trial. Id. at 322. Where the moving party does not have the ultimate burden of persuasion at trial, it may carry its initial burden of production in one of two ways: "The moving party may produce evidence negating an essential element of the nonmoving party's case, or, after suitable discovery, the moving party may show that the nonmoving party does not have enough evidence of an essential element of its claim or defense to carry its ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1106 (9th Cir. 2000). To withstand a motion for summary judgment, the non-movant must then show that there are genuine factual issues which can only be resolved by the trier of fact. Reese v. Jefferson Sch. Dist. No. 14J, 208 F.3d 736, 738 (9th Cir. 2000). A party asserting that a fact cannot be or is genuinely disputed cannot rely solely on its pleadings, but must support that assertion with citations to the record, such as affidavits, depositions, admissions, or answers to interrogatories. Fed. R. Civ. P. 56(c)(1); see also Celotex, 477 U.S. at 324.

The court must review the record as a whole and draw all reasonable inferences in favor of the non-moving party. Hernandez v. Spacelabs Med. Inc., 343 F.3d 1107, 1112 (9th Cir. 2003). To avoid summary judgment, the non-moving party need not produce evidence in a form that would necessarily be admissible at trial. Celotex, 477 U.S. at 324. However, unsupported conjecture or conclusory statements are insufficient to defeat summary judgment. See Hernandez, 343 F.3d at 1112; Surrell v. Cal. Water Serv. Co., 518 F.3d 1097, 1103 (9th Cir. 2008).

DISCUSSION

For the most part, the parties' motions for summary judgment overlap. Thus, Plaintiffs seek summary judgment on the following causes of action: (1) rescission and damages under TILA; (2) quiet title; and (3) California's UCL. Defendant seeks summary judgment on the same three causes of action and also on (4) violations of the RFDCPA.

I. TILA violations

Plaintiffs assert they are entitled to summary judgment on claim one of their first cause of action, which seeks rescission for TILA violations, for the following reasons: (1) Defendant used an improper NRC form; (2) Plaintiffs did not each receive two copies of the NRC form; and (3) the NRC form failed to include a specific numeric date upon which the right to cancel would expire. Furthermore, Plaintiffs assert they are entitled to summary judgment on claim two of their first cause of action, which seeks actual and statutory damages for TILA violations, because Defendant failed to comply with their Rescission Notice.

Defendant asserts that it is entitled to summary judgment on claim one of the first cause of action because: (1) Plaintiffs failed to tender, or allege an ability to tender, the proceeds of the loan; (2) the NRC form used was comparable to the required Model Form G-5; (3) Plaintiffs acknowledged that they each received two copies of the NRC form; and (4) the NRC form informed Plaintiffs when their right to cancel would expire using language nearly identical to that used in Model Form G-5. Defendant also asserts it is entitled to summary judgment on claim two of the first cause of action because the NRC form complied with all TILA requirements.

A. Ability to tender

Defendant first argues that Plaintiffs' first cause of action fails in its entirety because Plaintiffs have not tendered, or alleged an ability to tender, the loan proceeds. The rescission-tender sequence is governed by 15 U.S.C. § 1635(b), which provides:

Within 20 days after receipt of a notice of rescission, the creditor shall return to the obligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor's obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take possession of the property within 20 days after tender by the obligor, ownership of the property vests in the obligor without obligation on his part to pay for it.

Section 1635(b) further provides that the procedures described therein "shall apply except when otherwise ordered by a court." 15 U.S.C. § 1635(b). In Yamamoto v. Bank of New York, the Ninth Circuit explained that the decision on whether to depart from the 'rescission first, tender second' sequence is left to the discretion of the district court, and must be approached on a "case-by-case basis." 329 F.3d 1167, 1173 (9th Cir. 2003) (concluding that the district court did not abuse its discretion in reversing the rescission-tender sequence where it was "clear from the evidence that the borrower lacks capacity to pay back what she has received"). The propriety of modifying the rescission-tender order depends "on the equities present in a particular case, as well as consideration of the legislative policy of full disclosure that underlies the Truth in Lending Act and the remedial-penal nature of ...


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