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Paul Daniel, Margie Daniel v. Wells Fargo Bank

June 4, 2012


The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge


Before the Court are Defendants' Motion to Dismiss Plaintiffs' First Amended Complaint ("FAC") (ECF No. 5), Defendants' Motion to Strike Portions of Plaintiffs' FAC (ECF No. 6) and Request for Judicial Notice ("RJN") (ECF No. 7).

Also before the Court are Plaintiffs' Motions for: (1) Remand (ECF No. 9); (2) Untimely Filing of Opposition to Motion to Dismiss (ECF No. 13); (3) Issuance of Temporary Restraining Order ("TRO") and Preliminary Injunction ("PI") (ECF No. 20); and (4) Setting of Expedited Hearing on the Motion for TRO/PI (ECF No. 25).*fn1 For the reasons that follow, Defendants' Motion to Dismiss (ECF No. 5) and Request for Judicial Notice (ECF No. 7) are GRANTED and Defendants' Motion to Strike (ECF No. 6) is DENIED as MOOT. Plaintiffs' Motion for Remand (ECF No. 9) is DENIED, Plaintiffs' Motion for Untimely Filing of Opposition to Motion to Dismiss (ECF No. 13) is GRANTED, and Plaintiffs' Motions for TRO/PI and an expedited hearing on same (ECF Nos. 20 and 25) are DENIED as MOOT.


In the spring of 2007, Plaintiffs Paul Daniel and Margie Daniel refinanced their home located at 7821 Killdeer Way, Elk Grove, California, and entered into an Option Adjustable Rate Mortgage ("ARM") with World Savings Bank, which later became Wells Fargo Bank, N.A. ("Wells Fargo").*fn3 (FAC, ECF No. 1, at 7, Ex. A.)

Plaintiffs' FAC does not indicate what exactly happened following the refinancing, but Defendants state that Plaintiffs' original complaint was filed in state court in April of 2010 (although Defendants state they were not served with the FAC until September of 2011). (MTD, ECF No. 5 at 10; Notice of Removal and FAC, ECF No. 1.) In addition, Defendants state that Plaintiffs filed a petition for Chapter 7 bankruptcy in December 2010, and that this petition was discharged on May 17, 2011. (ECF No. 5 at 9, ECF No. 7, Exs. I and J (Voluntary Petition and Discharge of Debtor).) Defendants removed to this Court on October 7, 2011, on the basis of federal question jurisdiction.

Plaintiffs generally allege that the Option ARM is a deceptively devised financial product, which had higher interest rates than promised, and which was designed to, and did in fact, cause negative amortization of their loan to occur.*fn4 (FAC at 8-9.) Plaintiffs raise five claims for relief: (1) violations of the Truth in Lending Act, 15 U.S.C., §§ 1601, et seq. ("TILA"); (2) fraudulent omissions; (3) violation of California's Unfair Competition Law, Business and Profession Code §§ 17200, et seq. ("UCL"); (4) breach of contract; and (5) breach of the implied covenant of good faith and fair dealing.

On October 14, 2011, Defendants filed their MTD. (ECF No. 5.) Defendants' move to dismiss, under Fed. R. Civ. P. 12(b)(6),*fn5 on the basis that Plaintiffs': (1) claims are barred by judicial estoppel; (2) state law claims against Wachovia are barred by the Home Owner's Loan Act, 12 U.S.C. §§ 1461, et seq. ("HOLA"); (3) TILA claims are time-barred and Plaintiffs never tendered their indebtedness; (4) fraudulent omission claim fails to satisfy the elements for such a claim; (5) have failed to state a claim for unfair business practices under the UCL; (6) failed to allege a breach of the note or deed of trust; and (7) failed to state a claim for breach of the implied covenant of good faith and fair dealing. In addition, Plaintiffs filed a Motion to Strike portions of Plaintiffs' FAC. (ECF No. 6.)

On December 10 and 16, 2011, Plaintiff Paul Daniel filed a request, which the Court interprets as a Motion to Remand (see ECF Nos. 9 and 10), generally asking the Court to send the case back to state court due to Mr. Daniel's deteriorating health. While the Court is sympathetic to Mr. Daniel's health issues, they are not a basis for remand, and Defendants properly removed this case on the basis of federal question jurisdiction. Therefore, the motion is denied.

On March 28, 2012, Plaintiffs filed their Motion seeking leave to untimely file their Opposition, which attached their proposed Opposition. (ECF No. 13.)

The motion to permit untimely filing of the Opposition is unopposed and will be granted due to the fact that Plaintiffs' prior attorney has been indicted and Plaintiffs have only recently obtained new counsel. (See ECF No. 13, Exs. A-D.)

Thereafter, Plaintiffs filed their Motion for TRO/PI and Motion for Expedited Hearing. (ECF Nos. 20-25.) Plaintiffs contend that a TRO/PI is necessary to prevent Defendants from evicting them and because there is an unlawful detainer action proceeding in Sacramento Superior Court.


Because the Court's denial of Plaintiffs' Motion for a TRO/PI relates to the merits of their claims, the Court will first address Defendants' MTD. (ECF Nos. 5.) Because the Court concludes that the MTD should be granted, the MTS, (ECF No. 6), is denied as moot.


A. Standard

On a motion to dismiss for failure to state a claim under Rule 12(b)(6), all allegations of material fact must be accepted as true and construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996).

Rule 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief" in order to "give the defendant fair notice of what the. . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554-55 (2007) (internal citations and quotations omitted). Though "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555 (internal citations and quotations omitted). A plaintiff's factual allegations must be enough to raise a right to relief above the speculative level. Id. (citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-36 (3d ed. 2004) ("The pleading must contain something more. . . than . . . a statement of facts that merely creates a suspicion [of] a legally cognizable right of action")).

Moreover, "Rule 8(a)(2) . . . requires a 'showing,' rather than a blanket assertion of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirements of providing not only 'fair notice' of the nature of the claim, but also 'grounds' on which the claim rests." Twombly, 550 U.S. at 555, n.3 (internal citations omitted). A pleading must contain "only enough facts to state a claim to relief that is plausible on its face." Id. at 570; see also Ashcroft v. Iqbal, 556 U.S. 662, 677-679 (2009).

If the "plaintiffs . . . have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Twombly, 550 U.S. at 570; Iqbal, 556 U.S. at 680.

A court granting a motion to dismiss a complaint must then decide whether to grant leave to amend. Rule 15(a) empowers the court to freely grant leave to amend when there is no "undue delay, bad faith[,] dilatory motive on the part of the movant, . . . undue prejudice to the opposing party by virtue of . . . the amendment, [or] futility of the amendment. . . ." Foman v. Davis, 371 U.S. 178, 182 (1962). Leave to amend is generally denied when it is clear the deficiencies of the complaint cannot be cured by amendment. DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992); Balistieri v. Pacifica Police Dept., 901 F. 2d 696, 699 (9th Cir. 1990) ("A complaint should not be dismissed under Rule 12(b)(6) unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.")(internal citations omitted). While leave to amend must be freely given, the court is not required to allow futile amendments. Klamath-Lake Pharm. Ass'n v. Klamath Med. Serv. Bureau, 701 F.2d 1276, 1293 (9th Cir. 1983).

B. Analysis

Defendants generally argue this action may be dismissed on the basis of: (1) judicial estoppel; (2) HOLA; and (3) failure to state a claim on each of Plaintiffs' causes of action.

Each will be addressed before the Court discusses Plaintiffs' Motion for TRO/PI.

1. Judicial Estoppel

(a) Parties' Contentions

Defendants first contend that Plaintiffs' claims are barred under the doctrine of judicial estoppel because Plaintiffs failed to raise any of these claims in their bankruptcy proceeding and they should be estopped from raising them after the discharge of their bankruptcy. (MTD, ECF No. 5 at 2-4.) Specifically, Defendants argue that Plaintiffs' claims all arise from either the origination of their loan, or from its subsequent refinancing, all of which occurred before Plaintiffs filed for bankruptcy. (Id. at 2-3.) Because Plaintiffs failed to assert their claims in the bankruptcy proceeding, Defendants contend they should be estopped from pursuing their claim in this proceeding. (Id. at 3.)

In their Opposition, Plaintiffs do not contest that the claims should have been first filed in the bankruptcy proceeding. (ECF No. 19 at 2-3.) Rather, Plaintiffs argue that this action should be held in abeyance while they seek to reopen the bankruptcy action to raise their claims. Id.

(b) Analysis

"In the bankruptcy context, a party is judicially estopped from asserting a cause of action not raised in a reorganization plan or otherwise mentioned in the debtor's schedules or disclosure statements." Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 783 (9th Cir. 2001) (holding that plaintiff was estopped from suing an insurer subsequent to the discharge of his bankruptcy where he had notice of his claims against the insurer during the pendency of the bankruptcy action). Further, "[j]udicial estoppel will be imposed when the debtor has knowledge of enough facts to know that a potential cause of action exists during the pendency of the bankruptcy, but fails to amend his schedules or disclosure statements to identify the cause of action as a contingent asset." Id. at 784.

Here, Plaintiffs' claims arise from the loan origination and refinancing, which occurred in 2007-2008, so prior to their bankruptcy action, which was initiated in December of 2010 and discharged in 2011. In addition, Plaintiffs filed their lawsuit in state court during the pendency of the bankruptcy action. Plaintiffs were therefore on notice of their claims but failed to raise them in the bankruptcy proceedings. They are therefore estopped from proceeding ...

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