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Tom Klepac and Joy Klepac v. Ctx Mortgage Company

February 27, 2012


The opinion of the court was delivered by: Garland E. Burrell, Jr. United States District Judge


Pending are three separate dismissal motions brought by the following Defendants under Federal Rule of Civil Procedure ("Rule") 12(b)(6): Quality Loan Service Corporation ("QLS") and LSI Title Company ("LSI") (collectively "LSI Movants"); Mortgage Electronic Registration System, Inc. ("MERS"), Wells Fargo Bank, N.A., and Aurora Loan Services, Inc. ("Aurora") (collectively "Aurora Movants"); and CTX Mortgage Company, LLC ("CTX"). (ECF Nos. 13, 14, 19.) Each movant seeks dismissal of Plaintiffs' claims alleged under both federal and state law arguing the claims are not viable. Plaintiffs oppose each motion and in the alternative request they be given leave to amend if a motion is granted. CTX also seeks an order under Rule 12(f) striking Plaintiffs' punitive damages claim and request for attorney fees. (ECF No. 20.) However, this motion is denied as moot because of the decision below on the Rule 12(b)(6) motions.


Decision on a Rule 12(b)(6) dismissal motion requires determination "whether the complaint's factual allegations, together with all reasonable inferences, state a plausible claim for relief." Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys., 637 F.3d 1047, 1054 (9th Cir. 2011) (citing Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949-50 (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)).

When determining the sufficiency of a claim, "[w]e accept factual allegations in the complaint as true and construe the pleadings in the light most favorable to the non-moving party[; however, this tenet does not apply to] . . . legal conclusions . . . cast in the form of factual allegations." Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (citation and internal quotation marks omitted). "Therefore, conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss." Id. (citation and internal quotation marks omitted); see also Iqbal, 129 S. Ct. at 1949 (quoting Twombly, 550 U.S. at 555 (2007))(stating "[a] pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.'").


The Aurora Movants include in their motion a request that judicial notice be taken of the following documents, which are publically recorded in Placer County: four Deeds of Trust, recorded February 27, 2004, April 9, 2004, January 27, 2005, and December 29, 2005, respectively; a Notice of Default, recorded March 9, 2010; a Rescission of Notice of Default, recorded June 2, 2010; a Corporate Assignment of Deed of Trust, recorded April 22, 2010; a second Notice of Default, recorded June 2, 2010; a Substitution of Trustee, recorded February 15, 2011; a Notice of Trustee's Sale, recorded February 23, 2011; a Notice of Lis Pendens, recorded March 18, 2011; and a Trustee's Deed Upon Sale, recorded March 28, 2011. (Aurora Movants Req. for Judicial Notice Exs. A-L, ECF No. 16.)

"[G]enerally [review of a Rule 12(b)(6) motion] is limited to the face of the Complaint, materials incorporated into the complaint by reference, and matters of judicial notice." N.M. State Inv. Council v. Ernst & Young LLP, 641 F.3d 1089, 1094 (9th Cir. 2011) (citations omitted). Aurora Movants' judicial notice request is unnecessary for certain documents because Plaintiffs attached them to their Complaint as exhibits. Specifically, Exhibits A-J in the judicial notice request are attached to Plaintiffs' Complaint as Exhibits A-C and E-K and therefore may be considered in ruling on the Rule 12(b)(6) motions. See Hal Roach Studios, Inc. v. Richard Feiner and Co., Inc., 896 F.2d 1542, 1555 n.19 (9th Cir. 1989) ("[I]n ruling on a Rule 12(b)(6) motion . . . material which is properly submitted as part of the complaint may be considered.").

The remaining documents of which judicial notice is requested are Exhibits K and L, which are publically recorded documents in the Placer County Recorder's Office. A matter may be judicially noticed if it "can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201(b)(2). Since the documents are publically recorded and "the accuracy of these records are not subject to reasonable dispute," the judicial notice request is granted. W. Fed. Sav. & Loan Ass'n v. Heflin Corp., 797 F. Supp. 790, 792 (N.D. Cal. 1992) (taking judicial notice of documents in a county's public record).


Plaintiffs allege that "[o]n or about February 17, 2004, Plaintiffs executed a written first DEED of TRUST and security instrument with [CTX]." (Compl. ¶ 41.) Plaintiffs obtained a $371,600 loan secured by the Deed of Trust on real property located at 6241 Crater Lake Drive, Roseville, California (the "Property"). (Compl. Ex. A.) The Deed of Trust on the loan identifies CTX as the Trustee and MERS as the beneficiary. Id.

Plaintiffs allege they are "the victims of fraud, unlawful and predatory lending and an underlying conspiracy to commit fraud." (Compl. ¶ 15.) Plaintiffs also allege they "fac[e] the pending loss of their home through foreclosure initiated and advanced by Defendants in violation of the notice and standing requirements of California foreclosure law." Id. Specifically, Plaintiffs allege chain of title problems and that Defendants failed "to assist Plaintiffs in their efforts to avoid . . . default . . . of the subject mortgage debt and foreclosure." (Comp. ¶ 43-49, 55.)

On April 22, 2010, an Assignment Deed of Trust was recorded, in which MERS transferred all interest in the Property to Aurora Loan Services, LLC. (Compl. Ex. J.) On June 2, 2010, a Notice of Default was recorded. (Compl. Ex. G.) On February 15, 2011, a Substitution of Trustee was recorded in which QLS replaced CTX as trustee of the Property. (Compl. Ex. H.) On February 23, 2011, a Notice of Trustee Sale was recorded and on March 28, 2011, a Trustee's Deed Upon Sale was recorded. (Compl. Ex. I; RJN Ex. L.)

Plaintiffs allege the following claims in their Complaint: breach of security instrument, which includes allegations of violations of the federal Home Ownership Equity Protection Act ("HOEPA"); violation of the Real Estate Settlement Procedures Act ("RESPA"); violation of the Truth in Lending Act ("TILA"); violation of the Fair Credit Reporting Act ("FCRA"); violation of the Civil Racketeer Influenced and Corrupt Organizations Act ("RICO"); fraudulent misrepresentation; breach of fiduciary duty; unjust enrichment; civil conspiracy; quiet title; usury and fraud; and wrongful foreclosure.



Each Defendant argues that the statutes of limitations applicable to Plaintiffs' rescission and damages claims alleged under TILA and HOEPA have expired. (CTX Mot. to Dismiss ("CTX MTD") 4:26-28, 5:1-11; Aurora Movant's Mot. 6:21-23; LSI Movant's Mot. 11:5-6.)

Plaintiffs' allege Defendants violated HOEPA and TILA by failing to make certain disclosures required under the statutes prior to when their loan transactions closed; and, by "[e]ngaging in a pattern and practice of extending credit to Plaintiffs without regard to their ability to pay." (Compl. ¶¶ 64, 84-85.) Plaintiffs further allege they have a legal right to rescind the consumer credit transaction and that Defendants are liable to Plaintiffs for damages. (Compl. ¶¶ 65, 70, 86.)

A borrower's right to rescind a loan transaction under TILA "expire[s] three years after the date of the consummation of the transaction[.]" 15 U.S.C. § 1635(f). "15 U.S.C. § 1635(f) is a three-year statute of repose, requiring dismissal of a claim for rescission brought more than three years after the consummation of the loan secured by the first [Deed of Trust]." McOmie-Gray v. Bank of America Home Loans, No. 10-16487, - - - F.3d - - -, 2012 WL 390167, at *1 (9th Cir. Feb. 8, 2012) (citing Miguel v. Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002)). Further, "HOEPA is an amendment of TILA, and therefore is governed by the same remedial scheme and statutes of limitations as TILA." Hamilton v. Bank of Blue Valley, 746 F. Supp. 2d 1160, 1179 (E.D. Cal. 2010) (citation and internal quotation marks omitted). "Consummation" is defined under the statute as "the time that a consumer becomes contractually obligated on a credit transaction." Grimes v. New Century Mortg. Corp., 340 F.3d 1007, 1009 (9th Cir. 2003) (quoting 12 C.F.R. § 226.2(a)(13)).

Since Plaintiffs allege "[o]n or about February 17, 2004, Plaintiffs executed a written first DEED of TRUST and security instrument," Plaintiffs' right to rescission was extinguished under § 1635(f) on or about February 17, 2007. Plaintiffs did not attempt to rescind the transaction under TILA and HOEPA until they filed the Complaint on March 18, 2011. (Compl. ¶¶ 65, 86) Therefore, Plaintiffs' TILA and HOEPA rescission claims are untimely, and since § 1635(f) is a statute of repose, these claims are dismissed against all Defendants with prejudice. See Omar v. Sea-Land Serv., Inc., 813 F.2d 986, ...

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