On October 26, 2011, the court heard argument on defendants' motion to dismiss. Eric Yadao appeared for plaintiffs, who were present in court; Andrew Noble appeared telephonically for defendants Aurora Loan Services LLC (Aurora), Mortgage Electronic Registration Services, Inc. (MERS), and Capital One Financial Corporation (Capital One). As discussed below, defendants' motion is granted, with plaintiffs' being granted leave to amend all but two claims.
I. Factual and Procedural Background
On July 6, 2011, plaintiffs filed a complaint against Aurora Loan Services, LLC (Aurora), Capitol One Mortgage Corporation and Mortgage Electronic Registration Systems, Inc. (MERS), alleging causes of action for fraudulent misrepresentation, breach of fiduciary duty, unjust enrichment, civil conspiracy, quiet title, usury and fraud, wrongful foreclosure and breach of security instrument, all stemming from the purchase of and foreclosure on the real property located at 3055 Orbetello Way, El Dorado Hills, California. ECF No. 1 at 1.
On July 7, 2011, plaintiffs filed a motion for a temporary restraining order (TRO), seeking an order restraining the defendants from evicting them should they succeed in the unlawful detainer action scheduled to be heard in El Dorado County Superior Court on July 11, 2011. ECF No. 6-2 at 1. They asked for an order directing defendants to "refrain from reselling, or otherwise transferring, encumbering, hypothecating to any third party the Subject Property . . . or displacing Plaintiffs from the Subject Property during the pendency of this proceeding." Id. at 21. The documents submitted with the complaint and TRO show that a trustee's sale of the property was held on October 18, 2010, and that the Trustee's Deed was recorded on October 25, 2010, granting the property to defendant Aurora. ECF No. 1 at 60--61.
The court granted the request for a temporary restraining order, but directed plaintiffs to post a $25,000 bond, which the court was prepared to accept as the tender required in a challenge to a foreclosure. ECF No. 9 at 9--10. Plaintiffs did not post the bond, but rather provided copies of two bonds, totaling $25,000, which had been posted in El Dorado County Superior Court. ECF Nos. 12 & 13. The court issued a minute order noting that the copies of the two bonds did not satisfy its order. ECF No. 14. When plaintiffs did not post a satisfactory bond by the deadline, the court vacated the temporary restraining order. ECF No. 15.
On July 26, 2011, plaintiffs filed a second request for issuance of a temporary restraining order, noting that the trial on the unlawful detainer action had been moved to August
1. ECF No. 20-2 ¶ 2. With this request, plaintiffs' counsel submitted a declaration, averring that when the court issued its minute order rejecting the copies of bonds, he "immediately sought issuance of a new bond; . . . however, because only eight business hours remained in the day to acquire the bond, the new bond did not issue by day's end." ECF No. 20-2 ¶ 5. He continued: "[p]laintiffs have now solicited a new bond in the amount of $25,000 and are prepared to post said bond pursuant to the court's renewal of its order (docket #9) reinstating the TRO . . . ." ECF No. 20-2 ¶ 7.
The court issued a minute order later on July 26, directing counsel to file information about the proposed bond, including the extent of the surety's undertaking. ECF No. 23. Counsel did not respond, and the application for the temporary restraining order was denied. ECF Nos. 23 & 24.
On August 2, 2011, plaintiffs noticed a motion for a preliminary injunction, once again seeking to restrain defendants from proceeding with an unlawful detainer action, at that point rescheduled for November 7, 2011. This motion was supported by the same memorandum of points and authorities submitted in support of the TRO request, as well as a declaration of Sunil and Lynn Lori Wadhwa; the declaration offered a number of legal conclusions couched as factual statements. ECF Nos. 25-2 & 25-3. At hearing on the motion, plaintiffs' counsel said he was prepared to submit declarations supporting his contention that MERS' purported transfer of interest was fraudulent. He did not do so, and the motion for a preliminary injunction was denied. ECF No. 34.
Defendants filed the instant motion to dismiss on August 15, 2011. Defs.' Mot. to Dismiss (Mot.), ECF No. 26. Plaintiffs filed an opposition to that motion on September 28, 2011. ECF No. 31. In support of their opposition, plaintiffs also filed a request for judicial notice of certain matters. ECF No. 32.
II. Standards for a Motion to Dismiss
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." A court may dismiss "based on the lack of cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A motion to dismiss under this rule may also challenge the sufficiency of fraud allegations under the more particularlized standard of Rule 9(b) of the Federal Rules of Civil Procedure. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003).
Although a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief," (Fed. R. Civ. P. 8(a)(2)), in order to survive a motion to dismiss this short and plain statement "must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something more than "an unadorned, the-defendant-unlawfully-harmed-me accusation" or "'labels and conclusions'" or "'a formulaic recitation of the elements of a cause of action.'" Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss for failure to state a claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S.Ct. at 1950. Ultimately, the inquiry focuses on the interplay between the factual allegations of the complaint and the dispositive issues of law in the action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).
In making this context-specific evaluation, this court must construe the complaint in the light most favorable to the plaintiff and accept as true the factual allegations of the complaint. Erickson v. Pardus, 551 U.S. 89, 93--94 (2007). This rule does not apply to "'a legal conclusion couched as a factual allegation,'" Papasan v. Allain, 478 U.S. 265, 286 (1986) (quoted in Twombly, 550 U.S. at 555), nor to "allegations that contradict matters properly subject to judicial notice" or to material attached to or incorporated by reference into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988-89 (9th Cir. 2001). A court's consideration of documents attached to a complaint or incorporated by reference or matter subject to judicial notice will not convert a motion to dismiss into a motion for summary judgment. United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003); Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); Van Buskirk v. CNN, 284 F.3d 977, 980 (9th Cir. 2002) (noting that even though court may look beyond pleadings on motion to dismiss, generally court is limited to face of the complaint on 12(b)(6) motion).
III. Request for Judicial Notice
Plaintiffs ask the court to take judicial notice of several types of information.
First, they have proffered a Consent Order, Stipulation and Consent to Issuance of Consent Order, Amended Order to Cease and Desist, all stemming from proceedings in the federal Office of Thrift Supervision, In the Matter of Aurora Bank FSB, NE-11-16 and NE-10-33, as well as a Consent Order and Stipulation and Consent To The Issuance of a Consent Order issued by the Office of Thrift Supervision in In the Matter of MERSCORP, Inc., AA-EC-11-20. Second, they have presented a print-out of the MERS website, dated August 31, 2011, providing a list of MERS officers. Pls.' Request for Judicial Notice, Ex. B, ECF No. 32.
The court will take judicial notice of the various orders and stipulations relating to OTS's orders and decrees involving Aurora Bank and MERS, as these are federal government documents, readily available on the OTS website. See Serrano v. World Savings Bank, 2011 WL 1668631, at *2 (N.D. Cal. May 3, 2011) (government documents not subject to reasonable dispute and so judicially noticeable).
The court declines to take judicial notice of the print-out of the MERS website. This information is not subject to accurate and ready determination in light of the record before the court. Compare Experian Info. Solutions, Inc. v. Lifelock, Inc., 633 F. Supp. 2d 1104, 1107 (2009) (finding that material on Governor of Connecticut's web page not "capable of accurate and ready determination by resort to sources whose accuracy cannot be questioned."), with Datel Holdings Ltd. v. Microsoft Corp., 712 F. Supp. 2d 974, 983--84 (2010) (finding online warranty information that is publicly available is capable of accurate and ready determination by sources whose accuracy cannot be questioned, taking judicial notice only of the fact that the content exists, not the actual content of the documents). Because plaintiffs are using a list of MERS officers downloaded on August 11, 2011 to support their claim that Mary Jane Sarne was not an officer for MERS on October 15, 2009, the print-out would have no impact on the court's decision even if it were judicially noticeable.
As noted, plaintiffs allege fraudulent misrepresentation, breach of fiduciary duty, unjust enrichment, civil conspiracy, quiet title, usury and fraud, wrongful foreclosure and breach of security instrument. Many of the allegations in the complaint listed under "General Allegations" are not specific to this action, but are a screed against the mortgage industry and the securitization of mortgages generally. Complaint (Compl.) ¶¶ 40--68.*fn1
With respect to the facts of this particular case, plaintiffs allege that in October 2006, they executed a deed of trust with Greenpoint Mortgage as the lender and Marin Conveyancing as the trustee. Id. ¶ 17. According to plaintiffs, Capitol One Financial Corporation is the successor in interest to Greenpoint Mortgage Funding and is a party to this action under a theory of respondeat superior. Id. ¶ 4. Greenpoint was in the business of "making subprime consumer mortgage loans." Id. Plaintiffs identify defendant MERS as a business operating a database and assigning mortgages "in violation of California Corporations Code section 191(d)," id. at 3, and defendant Aurora as "a bank and/or servicer of mortgage loans." Id. ¶ 3.
A. Fraudulent Misrepresentation
Plaintiffs allege that defendants maliciously concealed information that should have been disclosed, "materially misrepresented material information" and "misrepresented the truth;" that plaintiffs reasonably relied on defendants "in agreeing to execute the mortgage loan documents;" and that plaintiffs first learned of these misstatements and omissions in August 2010. Compl. ¶¶ 70--75, 78. In the section of the complaint providing "General Allegations," plaintiffs describe only one instance of concealment: they allege the defendants failed to disclose the identity of the "true lender," that is, the members of the REMIC trust. Compl. ¶ 61.
Defendants argue that these allegations do not state a claim for fraudulent misrepresentation under California law, do not distinguish between the three defendants, and do not meet the heightened pleading standard for fraud under Federal Rule of Civil Procedure 9(b). Mot. at 4--5, ECF No. 26. Plaintiffs do not discuss how the complaint's allegations meet the pleading requirements. While plaintiffs make conclusory allegations that they were not told the source of the funding for the loan, their fraud argument is not plausible. The basis for their fraud allegation regarding the sale of the home is that the loan was a "fraudulent scheme" to "use Plaintiffs' interest in the real property to collect interest in excess of the legal rate." Compl. ¶ 73. Plaintiffs do not state what interest rate they were charged for their loan, nor do they allege that the rate they paid was different from the rate they agreed to. In their opposition, plaintiffs provide examples of defendants' allegedly fraudulent acts; they claim, for example, that defendants misrepresented to plaintiffs that defendants were the source of the loan funds and that they "had the right to carry out a foreclosure and sale of Plaintiff's home as properly assigned or substituted parties of interest." Pls.' Opp'n at 8, ECF No. 31. Even if these arguments established the elements of fraudulent misrepresentation, the court could not consider them in evaluating the sufficiency of the complaint. Adams v. New York State Educ. Dept., 752 F. Supp. 2d 420, 433 n.4 (S.D.N.Y. 2010) (court will not consider information in points and authorities in considering sufficiency of complaint); Winn v. Lassen Canyon Nursery Inc., 2010 WL 4688798, at *2 (E.D. Cal. Nov. 10, 2010).
In California, a claim of fraudulent misrepresentation has five elements:
(1) misrepresentation, which encompasses false representation, concealment and nondisclosure; (2) knowledge of falsity; (3) intent to defraud; (4) justifiable reliance; and (5) damage. Lazar v. Superior Court, 12 Cal. 4th 631, 637-38 (1996); Champlaie v. BAC Home Loans Servicing, LP, 706 F. Supp. 2d 1029, 1058 (E.D. Cal. 2009); Dooms v. Fed. Home Loan Mortg. Corp., 2011 WL 1232989, at *13 (E.D. Cal. 2011). A fraud claim against a corporation must provide information about the person who made the representations challenged as fraudulent, and his or her authority to speak. Dooms, 2011 WL 1232989, at *14.
In addition to the usual pleading requirements of Rule 8, allegations of fraud must meet heightened pleading standards. Under Rule 9(b), a plaintiff who alleges fraud "must state with particularity the circumstances constituting the fraud," but may "aver generally" the state of mind animating the fraud. The pleading must "'be specific enough to give defendants notice of the particular misconduct . . . so that they can defend against the charge and not just deny that they have done anything wrong.'" Sanford v. Memberworks, Inc., 625 F.3d 550, 557-58 (9th Cir. 2010) (quoting Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009)). To avoid dismissal, the complaint must describe the time, place, and specific content of the false representations and identify the parties to the misrepresentations. Id.; Dooms, 2011 WL 1232989, at *14. In addition, a plaintiff may not "lump multiple defendants together" but rather must "differentiate their allegations." Destfino v. Reiswig, 630 F.3d 952, 958 (9th Cir. 2011) (quoting Cisneros v. Instant Capital Funding Grp., Inc., 263 F.R.D. 595, 606--07 (E.D. Cal. 2009)). Plaintiffs' conclusory claims-that defendants failed to disclose the true identity of the lender-fall far short of the specificity required by the federal rules and do not match the elements of the cause of action as defined by federal law.
Defendants also argue that the cause of action is barred by the three year statute of limitations. See CAL. CIV. PROC. CODE § 338(d) (three year statute of limitations for actions "on the ground of fraud or mistake," which does not accrue "until the discovery . . . of the facts constituting the fraud"). A party is deemed to have discovered the fraud when it "'has reason at least to suspect the factual basis for its elements." Fox v. Ethicon Endo-Surgery, Inc., 35 Cal. 4th 797, 807 (2005) (quoting Norgart v. The Upjohn Company, 21 Cal. 4th 383, 398 (1999)). To rely on a claim of delayed discovery, a plaintiff must allege facts showing that the facts could not have been discovered earlier even in the exercise of reasonable diligence and identifying how and when plaintiff discovered the fraud. Briosos v. Wells Fargo Bank, 2011 WL 1740100, at *4 (N.D. Cal. May 5, 2011); but see Bonds v. Nicoletti Oil, Inc., 2008 WL 2233511, at *7--8 (E.D. Cal. May 28, 2008) (questioning whether California pleading standards apply, but finding it plaintiff's burden to plead facts supporting delayed discovery). Plaintiffs' bare claim that they did not discover the fraud until August 2010 does not save this claim from the operation of the statute of limitations. They will be given leave to amend this portion of the complaint, if they are able in light of Federal Rule of Civil Procedure 11.
B. Breach of Fiduciary Duties
Plaintiffs allege that defendants breached their fiduciary duty by inducing them to
"enter into a mortgage transaction which was contrary to Plaintiffs['] stated intention; contrary to the Plaintiffs' interest; and contrary to Plaintiffs' preservation of their home." Compl. ¶ 81. Plaintiffs also allege they "reposed trust and confidence" in defendants because plaintiffs are not bankers, mortgage brokers, mortgage lenders or securities dealers. Id. ¶ 80. Nothing in plaintiffs' description of the transaction, however, suggests that either Aurora or MERS played any role in the loan origination, either as lender or broker. Compl. ¶¶ 2--3, 12--13. Defendants argue that there is no fiduciary relationship between a lending institution and a borrower. Mot. at 5, ECF No. 26. The elements of a claim of breach of fiduciary duty are (1) the existence of a fiduciary duty; (2) a breach of that duty; and (3) damage as the result of the breach. Rosal v. First Federal Bank of California, 671 F. Supp. 2d 1111, 1128 (N.D. Cal. 2009). Under California law, there is no fiduciary relationship between a lender and a borrower when "the institution's involvement in the loan transaction does not exceed the scope of its conventional role as mere lender of money." Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal. App. 3d 1089, 1096 (1991); Rosal, 671 F. Supp. 2d at 1129. Courts have similarly determined that a loan servicer owes no fiduciary duty to a borrower "when its involvement in the transaction does not exceed the scope of its conventional role as a loan servicer such that it assumed a fiduciary duty." Huerta v. Ocwen Loan Servicing, Inc., 2010 WL 728223, at *4 (N.D. Cal. Mar. 1, 2010); Walters v. Fidelity Mortg. of Cal., Inc., 730 F. Supp. 2d 1185, 1205 (E.D. Cal. 2010). Nothing in the complaint suggests that MERS, described as a corporation that operates a database and assigns mortgages, has any fiduciary relationship with a mortgagor. Nothing in its role as nominee for the lender suggests that MERS owes any fiduciary duty to a trustor/borrower and plaintiffs have not alleged as much. In regard to Aurora and MERS, this claim is properly dismissed with prejudice.
While a mortgage broker does have a fiduciary duty to a borrower, a lender does not. Smith v. Home Loan Funding, Inc., 192 Cal. App. 4th 1331, 1332 (2011). Plaintiffs do not allege that Greenpoint was a broker, not merely a lender, nor do they allege such facts that would allow the court to determine that Greenpoint acted as a broker. ...