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Chad Rich v. Bank of America Home Loans; Federal National Mortgage Assoc


April 3, 2012


The opinion of the court was delivered by: Howard R. Lloyd United States Magistrate Judge

** E-filed April 3, 2012 **



Pro se plaintiff Chad Rich brought this action in Santa Clara County Superior Court against 18 defendants Bank of America Home Loans Servicing (incorrectly named "Bank of America Home 19 Loans") and the Federal National Mortgage Assocation ("Fannie Mae") (collectively, "defendants"), 20 alleging violations of the federal Truth in Lending Act, 15 U.S.C. § 1601 et seq. ("TILA"), the 21 federal Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq. ("ECOA"), and common law claims 22 for fraud, unconscionability, lack of standing, and wrongful foreclosure. Dkt. No. 1, Exh. A 23 ("Complaint"). Defendants timely removed the action to this court. Dkt. No. 1 ("Notice of 24 Removal"). 25

Plaintiff's complaint contains virtually no factual allegations, but appears to seek rescission 26 of a deed of trust he executed in August of 2004 for a "consumer loan." Complaint ¶¶ 13-14. He 27 does not specify whether either of the named defendants in this action was involved in the loan 28 origination, or whether they are solely successors in interest on the deed of trust. He offers no facts to explain when the relevant transaction occurred, who was involved, and what happened 2 subsequently. The court gathers from defendants' motion to dismiss and defendant's argument at the 3 hearing that Countrywide was the original loan servicer, that plaintiff defaulted on his loan 4 payments, and a foreclosure sale ultimately occurred in November 2010, after which title reverted to 5 Defendants now move to dismiss the complaint for failure to state a claim upon which relief 7 can be granted. Dkt. No. 4. Plaintiff has not opposed the motion. Because not all parties have 8 consented to the undersigned's jurisdiction, the court ORDERS the Clerk of the Court to reassign 9 this case to a district judge. Further, the undersigned RECOMMENDS that the newly assigned 10 judge grant defendants' motion to dismiss, with leave to amend.


A motion to dismiss for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6) tests the 13 legal sufficiency of the claims in the complaint. "Dismissal can be based on the lack of a cognizable 14 legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. 15 Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). In such a motion, all material allegations in 16 the complaint must be taken as true and construed in the light most favorable to the claimant. See 17 Balistreri, 901 F.2d at 699. However, "[t]hreadbare recitals of the elements of a cause of action, 18 supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 19 (2009). Moreover, "the court is not required to accept legal conclusions cast in the form of factual 20 allegations if those conclusions cannot reasonably be drawn from the facts alleged." Clegg v. Cult 21 Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994). Documents which properly are the 22 subject of judicial notice may be considered along with the complaint when deciding a Fed. R. Civ. 23 F.2d 500, 504 (9th Cir. 1986). 25

26 showing that the pleader is entitled to relief," meaning that the "[f]actual allegations must be enough 27 to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 28 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citations omitted). See also Iqbal, 129 S. Ct. at 1950 Fannie Mae. P. 12(b)(6) motion for failure to state a claim for relief. See MGIC Indem. Corp. v. Weisman, 803 24 Federal Rule of Civil Procedure 8(a)(2) requires "a short and plain statement of the claim ("[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss."). 2

However, a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual 3 allegations and "heightened fact pleading of specifics" is not required to survive a motion to 4 dismiss. Bell Atlantic Corp., 550 U.S. at 570. Rather, the complaint need only give "enough facts to 5 state a claim to relief that is plausible on its face." Id. But, claims for fraud must be pled "with 6 particularity." Fed. R. Civ. P. 9(b). 7

I. Defendants' Request for Judicial Notice

Defendants ask this court to take judicial notice of six documents: (1) a Deed of Trust 10 executed on August 12, 2004 and recorded with the Santa Clara County Recorder on August 18, 2004; (2) a Substitution of Trustee and Assignment of the Deed of Trust recorded with the Santa Clara County Recorder on August 13, 2010; (3) a Notice of Default and Election to Sell Under Deed 13 of Trust, recorded with the Santa Clara County Recorder on August 5, 2010; (4) a Notice of 14 Corporation Assignment of Deed of Trust/Mortgage, recorded with the Santa Clara County 16 Recorder on May 12, 2011. Dkt. No. 5. 18

19 in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice." 20

Swartz v. KPMG, LLP, 476 F.3d 756, 763 (9th Cir. 2007). A court may take judicial notice of facts 21 that are not subject to reasonable dispute. Fed. R. Evid. 201. Such facts include matters of public 22 record. Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001). These six documents were 23 all recorded with the Santa Clara County Recorder and are therefore in the public record. 24

Accordingly, the court recommends that the newly assigned judge judicially notice all six 25 documents. 26

A. Plaintiff's First Claim for Violation of TILA


Trustee's Sale, recorded with the Santa Clara County Recorder on November 12, 2010; (5) a 15

Recorder on May 12, 2011; and (6) a Trustee's Deed of Sale, recorded with the Santa Clara County 17

In deciding a motion to dismiss, the court is ordinarily limited to only "allegations contained

II. Defendants' Motion to Dismiss

2 appears to seek both injunctive relief and damages. Defendants argue that the complaint fails to state 3 a claim for relief. The court agrees. 4

The right of rescission under TILA does not apply to a "residential mortgage transaction"- i.e., a loan transaction to finance the acquisition of the borrower's residence. 15 U.S.C. § 1635(e)(1) 7 and § 1602(w); Rivera v. BAC Home Loans Servicing, L.P., 756 F. Supp. 2d 1193, 1198 (N.D. Cal. 8 Plaintiff's complaint offers virtually no factual allegations to support his TILA claim. He

1. Rescission

2010). Although plaintiff has not explained the nature of the subject property, he does refer in the 9 complaint to "an unconscionable mortgage loan agreement which skimmed equity form [sic] their 10 home." Complaint ¶ 10. At the hearing, defense counsel confirmed that the loan was for the purchase of a home. Therefore, TILA's right of rescission does not apply to this transaction.

Even if the right of rescission did apply, it appears that the statute of limitations on plaintiff's 13 right to rescission has run out. See 15 U.S.C. § 1635(f). "[Section] 1635(f) completely extinguishes 14 the right of rescission at the end of the 3-year period." Beach v. Ocwen Federal Bank, 523 U.S. 410, 15

Cir. 1986) (holding that TILA, section 1635(f) is an "absolute limitation on rescission actions"). The 17 Ninth Circuit construes section 1635(f) as a "statute of repose, depriving the courts of subject matter 18 jurisdiction when a § 1635 claim is brought outside the three-year limitation period." Miguel v. 19 Country Funding Corp., 309 F.3d 1161, 1165 (9th Cir. 2002). Although plaintiff's complaint offers 20 no facts whatsoever regarding when the loan was consummated, the Deed of Trust was executed on 21 No. 5, Exh. 1 ("Deed of Trust"); see Rivera, 756 F. Supp. 2d at 1198 (stating that "'if the borrower 23 files his or her suit over three years from the date of a loan's consummation, a court is powerless to 24 grant rescission.'") (quoting Miguel, 309 F.3d at 1165)). Plaintiff did not timely exercise his right 25 to rescission. 26

27 of limitations begin to toll when the claimant discovered or should have discovered the violation. 28 Nat'l Labor Relations Bd. v. Don Burgess Constr. Corp., 596 F.2d 378, 382-83 (9th Cir. 1979), 412, 118 S. Ct. 1408, 140 L.Ed.2d 566 (1998); see also King v. California, 784 F.2d 910, 913 (9th 16 August 12, 2004, approximately seven and a half years before plaintiff filed this lawsuit. See Dkt. 22 Nor has plaintiff alleged facts to support a tolling of the state of limitations. Federal statutes citing Holmberg v. Armbrecht, 327 U.S. 392, 397 (1946). In cases of fraud, the statute of limitations 2 does not run until the fraud is discovered or should have been discovered through due diligence. See 3 Holmberg, 327 U.S. at 397. However, plaintiff must do more than allege that he was not provided 4 with the appropriate TILA notice of right to rescission. Were that sufficient to toll the state of 5 limitations, the three-year limit itself would be meaningless. The plaintiff has not alleged a knowing 6 and willful concealment of wrongdoing by defendants that would suffice to toll the statute of 7 limitations beyond its strict three year limit. 8

9 recommends that his claim be DISMISSED as against all defendants, with leave to amend. 10

Defendants argue that plaintiff's TILA claim for damages fails because he "has not alleged facts constituting a TILA violation." Dkt. No. 4, p. 7. Plaintiff's only allegation of a TILA violation 13 appears to be the following: "Defendants . . . violated TILA and Regulation Z by misrepresenting to 14 plaintiff that plaintiff did not have the right to back out of the mortgage at closing." Complaint ¶ 2. 15

By "plaintiff's right to back out of the mortgage," the court believes plaintiff refers to the right of 16 rescission, pursuant to 15 U.S.C. § 1635(e). 15 U.S.C. §1640(a) permits a plaintiff to seek damages 17 for any violation of TILA, "including any requirement under section 125 [15 USCS § 1635]." But, 18 as noted in the preceding section, the right of rescission does not apply to residential mortgage 19 transactions like this one. Thus, plaintiff's lone allegation of a TILA violation fails. 20

21 against the defendants, his claim is time-barred. Dkt. No. 4, pp. 6-7. Claims for damages under TILA are barred by a one-year statute of limitations, which begins to run "from the date of 23 consummation of the transaction." See King, 784 F.2d 910, 915 (9th Cir. 1986); see also 15 U.S.C. 24 § 1640(e). In this case, plaintiff's claims would have arisen on the date the loan was consummated, 25 on or around August 12, 2004. Plaintiff did not file this action until January 4, 2012, approximately 26 seven and a half years later. See Complaint. "[E]quitable tolling may, in the appropriate 27 circumstances, suspend the limitations period until the borrower discovers or had reasonable 28 opportunity to discover the fraud or nondisclosures that form the basis of the TILA action." King,

Accordingly, to the extent plaintiff seeks rescission under TILA, the undersigned

2. Damages

Defendants correctly argue that even if plaintiff could conceivably state a claim for damages 784 F.2d at 915. A motion to dismiss on statute of limitations grounds should be granted only when 2 the assertions of the complaint, read with the required liberality, would not permit the plaintiff to 3 prove that the limitations period was tolled. See Plascencia v. Lending 1st Mortgage, 583 F. 4 (9th Cir. 1987)). The doctrine of equitable tolling applies in situations where, despite all due 6 diligence, the party invoking the doctrine is unable to obtain vital information bearing on the 7 existence of the claim, or where he has been induced or tricked by his adversary's misconduct into 8 allowing the deadline to pass. Hensley v. United States, 531 F.3d 1052, 1057-58 (9th Cir. 2008). 9

Supp.2d 1090, 1097 (N.D. Cal. 2008) (citing Durning v. First Boston Corp., 815 F.2d 1265, 1268 5 Plaintiff must provide facts "to explain how defendants concealed the true facts or why plaintiff 10 could not otherwise have discovered the TILA violations at the consummation of her loan." Wong v. American Servicing Co., Inc., 2009 WL 5113516 (E.D. Cal. Dec. 18, 2009).

Here, plaintiff has not presented any facts to explain why he was unable to discover the 13 violation within the statutory period. Accordingly, to the extent plaintiff seeks damages under TILA, 14 the undersigned recommends that his claim be DISMISSED. As currently pled, this court concludes 15 that plaintiff has not properly asserted a TILA claim against any of the defendants. However, if 16 plaintiff believes that he has a viable TILA damages claim against any or all of the defendants, the 17 undersigned recommends the court permit plaintiff to amend this claim if, in compliance with Fed. 18 R. Civ. P. 11, he can truthfully allege facts that would support a TILA damages claim, as well as 19 equitable tolling of the limitations period. 20

Plaintiff alleges that "Defendant" is a creditor under 15 U.S.C. § 1691 et seq. ("ECOA") and 22 that "[t]he Defendant violated ECOA by failing to provide the Plaintiff with written notice of his 23 counteroffer within thirty days of receiving the completed application." Plaintiff never specifies 24 which defendant he intends to state this claim against, nor does he make any effort to explain what 25 he means by "completed application" or "counteroffer." Defendants argue that plaintiff's claim fails 26 because it mistakes the applicable law and is time-barred. The court agrees. 27

28 of a completed application for credit, to notify the applicant of the creditor's action on the

B. Plaintiff's Fourth Claim for Violation of ECOA

ECOA is an anti-discrimination statute that requires a creditor, within thirty days of receipt application. 15 U.S.C. § 1691(d)(1). If the creditor takes an "adverse action," defined as "a denial or 2 revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant 3 credit in substantially the amount or on substantially the terms requested," the creditor must provide 4 a "statement of reasons" for the adverse action. 15 U.S.C. § 1691(d)(2)-(6). Plaintiff must allege that 5 he was a member of a protected class and was discriminated against on that basis by a creditor. See 6 Chiang v. Veneman, 385 F.3d 256, 259, 46 V.I. 679 (3rd Cir. 2004)). 8

9 only has Rich not alleged that he is a member of a protected class, he has not alleged that the 10 defendant took an adverse action against him. Instead, plaintiff has alleged that the "defendant" "extended a consumer loan." Complaint ¶ 14. This is the opposite of an "adverse action" as that term is defined under ECOA. See 15 U.S.C. § 1691(d). Plaintiff does not explain why he believes he 13 should have been given a counteroffer or how this fits into the statutory scheme. Simply put, 14 plaintiff's allegations do not state any ECOA violation whatsoever, and the court is skeptical that he 15 could truthfully state a claim if given leave to amend. 16

17 violation, it would be time-barred. Dkt. No. 4, p. 11. Defendants incorrectly argue that the 18 applicable statute of limitations is two years. ECOA was amended, effective July 21, 2011, to 19 extend the statute of limitations to five years. See Pub. L. 111-203, §§ 1085(1), (5)-(7), 124 Stat. 20 2083, 2085, 2113 (2010) (amending 15 U.S.C. § 1691e(f) "by striking 'two years from' each place 21 that term appears and inserting '5 years after'"). Even so, defendants' argument holds, as plaintiff 22 did not file this action until over seven years after the loan transaction occurred. Plaintiff offers no 23 facts to support a tolling of the statute of limitations. 24

Although skeptical that plaintiff can do so, the undersigned recommends the court permit plaintiff to 26 amend this claim if, in compliance with Fed. R. Civ. P. 11, he can truthfully allege facts that would 27 support an ECOA claim, as well as equitable tolling of the limitations period. 28

C. Plaintiff's State Law Claims

Hafiz v. Greenpoint Mortg.e Funding, Inc., 652 F. Supp. 2d 1039, 1045 (N.D. Cal. 2009) (citing 7 Plaintiff's complaint completely fails to explain why ECOA is applicable to this action. Not

In addition, defendants argue that even if plaintiff could conceivably state an ECOA

Accordingly the undersigned recommends that plaintiff's ECOA claim be DISMISSED.

In light of the court's dismissal of plaintiff's two federal claims, the court declines to 2 consider the state claims at this time. Accordingly, the undersigned recommends that these claims 3 also be DISMISSED, with leave to amend. Should the plaintiff file an amended complaint that 4 adequately pleads a federal claim, the newly assigned district court judge may decide to exercise 5 supplemental jurisdiction over the state claims. See 28 U.S.C. 1367. 6

The court will note that the complaint as presently set forth does not appear to allege state law claims upon which relief can be granted. Plaintiff is advised that if he intends to amend these 8 claims, he must provide factual allegations that clearly set forth each claim for relief, the facts 9 relevant thereto, and plausibly leads to the conclusion that each of the defendants are liable for the 10 claim asserted against them.


Because not all parties have consented to the undersigned's jurisdiction, this court

ORDERS the Clerk of the Court to reassign this case to a District Judge. The undersigned further 14

RECOMMENDS that the newly assigned judge dismiss the plaintiff's complaint. Pursuant to 15

Federal Rule of Civil Procedure 72(b), any party may serve and file objections to this Report and 16

Recommendation within fourteen days after being served. 17 18

C 12-00757 Notice will be electronically mailed to: Imran Hayat Justin Balser 3 2 Notice will be mailed to: 4 Chad Rich 5 38 N. Almaden Boulevard #703 San Jose, CA 95110 6 7 Counsel are responsible for distributing copies of this document to co-counsel who have not registered for e-filing under the court's CM/ECF program. 8 9 10


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