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Kris Kaszuba, et al v. Octfcu Mortgage Co. and Schools First Federal Credit Union

January 3, 2012


The opinion of the court was delivered by: Hon. Dana M. Sabraw United States District Judge


In this mortgage foreclosure action, Defendants OCTFCU Mortgage Co. LLC ("OCTFCU"), SchoolsFirst Federal Credit Union ("SFFCU," collectively the "Credit Union Defendants") and Fidelity National Default Services ("FNDS") filed motions to dismiss under Federal Rule of Civil Procedure 12(b)(6). Plaintiffs opposed the motions and Defendants replied. For the reasons which follow, the Credit Union Defendants' motion to dismiss is GRANTED and FNDS' motion to dismiss is DENIED AS MOOT.

Factual and Procedural Background

According to Plaintiffs' allegations and the documents filed with Defendants' motions,*fn1 on or about September 28, 2005 Plaintiffs borrowed $443,200, secured by a Deed of Trust on their condominium ("Property"). The loan was funded by OCTFCU, a former affiliate of SFFCU. Among other things, Plaintiffs contend they were defrauded because they did not find out until closing that the lender would not be SFFCU, their non-profit credit union, but OCTFCU, its for-profit affiliate.

Plaintiffs eventually defaulted on the loan. They fault the Credit Union Defendants for failing to assist them by modifying the loan or allowing a short sale. A Notice of Default was recorded on July 12, 2010. Plaintiffs claim the notice was invalid because it was signed by FNDS as the Trustee, but FNDS was not substituted as the Trustee until October 2010. Furthermore, when the Notice of Default was signed, FNDS had not yet registered its fictitious business name. The Substitution of Trustee was signed on October 21, 2010 and substituted FNDS as the Trustee. Plaintiffs contend the Substitution of Trustee was invalid because it was notarized two days before it was signed. A Notice of Sale was recorded on January 18, 2011, setting the date of sale for February 4, 2011.

On January 21, 2011, Plaintiffs, proceeding pro se, filed the instant action and immediately applied for a temporary restraining order ("TRO"). Their amended motion for a TRO was granted on February 4, 2011. The order enjoined the foreclosure sale and ordered Defendants to show cause why a preliminary injunction should not be issued. Because Defendants did not respond to the order to show cause, a preliminary injunction was issued on February 10, 2011.

On August 12, 2011, the Court granted in part and denied in part the Credit Union Defendants' motion to dismiss with leave to amend. FNDS's motion to dismiss was denied as moot on September 8, 2011 because Plaintiffs had filed their first amended complaint. In the first amended complaint, Plaintiffs did not address their claims against FNDS (First Am. Compl. at 2), although FNDS was a named Defendant in the initial and the first amended complaints. Instead, they requested an opportunity to file a separate first amended complaint against FNDS at a later date. (Id.)

All three Defendants filed motions to dismiss the first amended complaint, which are pending before the Court. In response to the motions and prior to filing their opposition briefs, Plaintiffs filed a motion for leave to amend together with a proposed second amended complaint. The Court issued an order to show cause why Plaintiffs' motion should not be granted and Defendants' motions denied as moot. Based on the Credit Union Defendants' objections, Plaintiffs' motion was denied on November 21, 2011. The motion is construed as a request for leave to amend and the proposed second amended complaint, which addresses claims against all three Defendants, is considered together with Plaintiffs' opposition to the pending motions. Except for objecting to a request for judicial notice, however, Plaintiffs' opposition briefs do not substantively address Defendants' arguments.

Although they filed their proposed second amended complaint with the benefit of two rounds of motion to dismiss briefing, with the exception of alleging violation of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), as a separate cause of action against the Credit Union Defendants,*fn2 Plaintiffs' proposed second amended complaint is not substantially different from their first amended complaint. In their proposed second amended complaint, they asserted eleven causes of action: (1) fraud and fraudulent conduct; (2) unfair and deceptive practices;*fn3 (3) negligence; (4) breach of fiduciary duty; (5) violation of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2605 ("RESPA"), against the Credit Union Defendants only; (6) violation of the Federal Credit Union Act, 12 U.S.C. § 1751 et seq. ("FCUA"), against the Credit Union Defendants only; (7) violation of California Civil Code Sections 2923.5 and 2923.6; (8) request to vacate and void Notice of Default and Notice of Trustee's Sale; (9) rescission of the Deed of Trust against the Credit Union Defendants only; (10) predatory lending practices against the Credit Union Defendants only; and (11) TILA violation against the Credit Union Defendants only. Plaintiffs alleged subject matter jurisdiction pursuant to 28 U.S.C. Section 1331 based on their federal claims,*fn4 and supplemental jurisdiction over their state law claims pursuant to 28 U.S.C. Section 1367(a). (First Am. Compl. at 3; Proposed Second Am. Compl. at 3.)


Defendants move to dismiss this action pursuant to Federal Rule of Civil Procedure 12(b)(6). A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted where the complaint lacks a cognizable legal theory. Shroyer v. New Cingular Wireless Serv., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010) (internal quotation marks and citation omitted); see Neitzke v. Williams, 490 U.S. 319, 326 (1989) ("Rule 12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law"). Alternatively, a complaint may be dismissed where it presents a cognizable legal theory yet fails to plead essential facts under that theory. Robertson v. Dean Witter Reynolds, Inc.,749 F.2d 530, 534 (9th Cir. 1984); see also Shroyer, 622 F.3d at 1041.

In this regard, "to survive a motion to dismiss, a complaint must contain sufficient factual matter to state a facially plausible claim to relief." Shroyer, 622 F.3d at 1041, citing Ashcroft v. Iqbal, 556 U.S. 662, __, 129 S. Ct. 1937, 1949 (2009). "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." Iqbal, 129 S. Ct. at 1949, citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). "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." Iqbal, 129 S. Ct. at 1950. Because Plaintiffs are proceeding pro se, their pleadings are "held to less stringent standards than formal pleadings drafted by lawyers." Hebbe v. Pliler, 627 F.3d 338, 342 (9th Cir. 2010).

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). Legal conclusions need not be taken as true merely because they are couched as factual allegations. Twombly, 550 U.S. at 555. Similarly, "conclusory allegations of law and unwarranted inferences are ...

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