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Larry A. Kimball, and Kathie D. v. Bank F.S.B.

July 25, 2012


The opinion of the court was delivered by: Hon. Anthony J. Battaglia U.S. District Judge


Presently before the Court are Defendants' motion to dismiss Plaintiffs' Complaint (Doc. No. 4) and Plaintiffs' motion for leave to amend the Complaint (Doc. No. 10). In accordance with Civil Local Rule 7.1.d.1, the Court finds these motions suitable for determination on the papers and without oral argument. Accordingly, the motion hearing scheduled for August 17, 2012 is hereby vacated. For the reasons set forth below, Defendants' motion to dismiss is GRANTED, and Plaintiffs' motion to amend DENIED AS MOOT.



Plaintiffs Larry and Kathie Kimball (collectively "Plaintiffs") are owners of real property in San Diego. (Compl. ¶ 18.) In January 2008, Plaintiffs refinanced an existing loan with a new loan in the amount of $350,000. (Id. ¶ 19.) The note on the property is secured by a Deed of Trust recorded on January 10, 2008. The Deed of Trust identifies Defendant Flagstar Bank, F.S.B. ("Flagstar") as the lender, Joan H. Anderson as the trustee, and Mortgage Electronic Registration Systems, Inc. ("MERS") as the beneficiary. (Req. for Judicial Notice ("RJN") Ex. A.)*fn1

After the value of Plaintiffs' residence considerably dropped, Plaintiffs "discovered that their loan had numerous violations of the Federal Truth in Lending Act ("TILA") and Federal Reserve Regulation Z, and determined that many of the disclosures did not comply with California and Federal law[,]" which spurred the instant lawsuit. (Compl. ¶¶ 20, 21.) In support of their TILA violation, Plaintiffs identify a myriad of defects in the loan documents. (See id. at ¶¶ 23(I)-(X).) Although Plaintiffs acknowledge that they received a copy, Plaintiffs allege that they failed to receive the requisite two copies of the Notice of Right to Cancel. They also claim that the Notice of Right to Cancel was defective as to the date the rescission period expired. (Id. at ¶¶ 23(I)-(II).) Plaintiffs further contend that the unsigned Truth in Lending Disclosure Statement incorrectly recites the Amount Financed and Finance Charges. (Id. at ¶¶ 23(IV)-(V).) Finally, Plaintiffs contend that although the Yield Spread Premium is stated in the Final Settlement Statement, Defendants allegedly failed to disclose information on the Estimated Closing Statement. (Id. at ¶ 23(IV); see also RJN Ex. D.)

Plaintiffs filed this action on February 17, 2012, seeking rescission of the loan and statutory damages. The Complaint sets forth ten causes of action: (1) intentional misrepresentation, (2) breach of the covenant of good faith and fair dealing, (3) declaratory relief, (4) quiet title, (5) rescission and damages under TILA, (6) California Unfair Business Practices, (7) fraud, (8) violation of the Home Affordable Modification Program ("HAMP") under the Emergency Economic Stabilization Act of 2008, (9) accounting, and (10) cancellation of instrument.

Defendants filed the instant motion to dismiss on March 16, 2012. Plaintiffs filed an Opposition on April 20, 2012, and Defendants filed a Reply on May 4, 2012.



A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the pleadings and allows a court to dismiss a complaint upon a finding that the plaintiff has failed to state a claim upon which relief may be granted. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). The court only reviews the contents of the complaint, accepting all factual allegations as true, and drawing all reasonable inferences in favor of the nonmoving party. al-Kidd v. Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009) (citations omitted). To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations, rather, it must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 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." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).


DISCUSSION Defendants argue that all of Plaintiffs' causes of action should be dismissed for failure to state a claim under Rule 12(b)(6). The causes of action are addressed in turn.

Intentional Misrepresentation and Fraud

In their first cause of action for intentional misrepresentation, Plaintiffs allege that Defendants concealed or suppressed material facts, including Plaintiffs' right to cancel, the accuracy of the finance charges, and the Yield Spread Premium charges. (Compl. ¶ 27.) Plaintiffs also allege that Defendants failed to assess Plaintiffs' ability to repay the loan and put Plaintiffs in a loan where there was a high probability of default. (Id.) Plaintiffs' seventh cause of action for fraud alleges that Defendants failed to "accurately and honestly disclose the material terms of the loan to the Plaintiffs and to make certain Plaintiffs understood the terms of the loan that they were entering into." (Id. at ¶ 67.) Plaintiffs claim that they relied upon such representations and omissions and were induced into obtaining the subject loan and modification on the Property. (Id. at ¶ 71.) Defendants move to dismiss Plaintiffs' fraud-based claims for failure to satisfy Rule 9(b)'s heightened pleading requirements. Additionally, Defendants assert that Plaintiffs' fraud-based causes of action are time-barred and therefore must be dismissed.

1. Particularity Pleading Standard

Under California law, the elements of common law fraud are "misrepresentation, knowledge of its falsity, intent to defraud, justifiable reliance, and resulting damages." Gil v. Bank of Am., Nat'l, 138 Cal.App.4th 1371, 1381 (Cal. Ct. App. 2006). Under Federal Rule of Civil Procedure 9(b), a party alleging fraud or intentional misrepresentation must satisfy a heightened pleading standard by stating with particularity the circumstances constituting fraud. Fed. R. Civ. P. 9(b). Specifically, "[a]verments of fraud must be accompanied by 'the who, what, when, where, and how' of the misconduct charged." Vess v. Ciba--Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (quotation omitted). Further, "a plaintiff must set forth more than the neutral facts necessary to identify the transaction. The plaintiff must set forth what is false or misleading about a statement, and why it is false." Id. (quoting In re Glenfed, Inc. Securities Litigation, 42 F.3d 1541, 1548 (9th Cir. 1994), superceded by statute on other grounds). A plaintiff must also differentiate his allegations when suing more than one defendant, especially in the context of fraud claims. Swartz v. KPMG LLP, 476 F.3d 756, 765--66 (9th Cir. 2007).

Defendants argue that Plaintiffs "do not and cannot identify the individual at Flagstar they spoke with during the loan transaction that is responsible for the alleged misrepresentations." (Defs.' Mot. at 5.) Defendants further assert that the Complaint lacks specificity as to the fundamentals of when and where these misrepresentations occurred, or how Defendants prevented Plaintiffs from discovering them. (Id.) In their opposition, Plaintiffs assert that they cannot be expected to have personal knowledge of the relevant facts and therefore a relaxed pleading requirement should apply. (Pls.' Opp'n at 7.) The Court disagrees. Plaintiffs contend that they cannot identify when and where these alleged misrepresentations occurred, or what individual at Flagstar made such misrepresentations. (See id. at 8.) The conclusory allegations of fraud against Defendants are insufficient to meet Rule 9(b)'s strict pleading standards.

Furthermore, Defendants assert that Plaintiffs' allegation that Flagstar concealed or suppressed facts by non-disclosure of provided material documents is "not plausible" and contrary to the signed records.*fn2 (Defs.' Mot. at 5.) Defendants specifically contend that the documents attached to the Request for Judicial Notice confirm that Plaintiffs received all material disclosures. Moreover, even if Defendants failed to disclose material facts known only to Defendants and not to Plaintiffs, Defendants argue that because there is no fiduciary relationship between the parties, failure to disclose such material facts is not actionable fraud. See Kovich v. Paseo Del Mar Homeowners' Ass'n, 41 Cal. App. 4th 863, 866 (Cal. Ct. App. 1996) ("The general rule for liability for nondisclosure is that even if material facts are known to one party and not the other, failure to disclose those facts is not actionable fraud unless there is some fiduciary or confidential relationship giving rise to a duty to disclose."); see also Nymark v. Heart Fed. Sav. & Loan Ass'n, 231 Cal. App. 3d 1089, 1093 (Cal. Ct. App. 1991) (stating that there is no fiduciary relationship between a lender and a borrower). The Court agrees, and thus Plaintiffs' bare allegations of fraud and intentional misrepresentations are insufficient to state a cognizable claim under the standards set forth above.

2. Limitations Period

Defendants additionally argue that Plaintiffs' fraud-based claims are barred by the three-year statute of limitation under California Code of Civil Procedure § 338(d), because they arise from an alleged wrongdoing that occurred at the time of the loan's origination on January 10, 2008. Plaintiffs did not file the Complaint until February 17, 2012, more than four years later.

Plaintiffs attempt to establish that their claims should not be barred by the applicable statute of limitations under the doctrine of equitable tolling. Plaintiffs, however, have failed to establish that equitable tolling should apply in this case. A party asserting equitable tolling must demonstrate that: (1) she has been diligent in pursuing her rights, and (2) "'extraordinary circumstances beyond [her] control made it impossible to file the claims on time.'" Huynh v. Chase Manhattan Bank, 465 F.3d 992, 1004 (9th Cir. 2006) (quoting Seattle Audubon Soc'y v. Robertson, 931 F.2d 590, 595 (9th Cir. 1991)). The doctrine is to be applied sparingly and is reserved only for "extreme cases," such as when the claimant has been tricked by an adversary into letting a deadline expire, an administrative agency's notice of the statutory period is clearly inadequate, or when the statute of limitations is not complied with solely due to defective pleadings. Scholar v. Pac. Bell, 963 F.2d 264, 267-68 (9th Cir. 1992); see also Irwin v. Dep't of Veterans Affairs, 498 U.S. 89, 96 (1990).

Plaintiffs allege that they did not discover the fraudulent misrepresentations and TILA violations in their loans "until years after the loan transaction was consummated." (Pls.' Opp'n at 9.) However, Plaintiffs fail to allege why they could not have discovered the alleged wrongdoing earlier. There is no suggestion that Defendants prevented Plaintiffs from comparing their loan documents and disclosures with the TILA requirements. See, e.g., Garcia v. Wachovia Mortg. Corp., 676 F. Supp. 2d 895, 906 (C.D. Cal. 2009) ("Nothing prevented [the plaintiff] from comparing the loan contract, [the lender's] initial disclosures, and TILA's statutory and regulatory requirements.") (citation omitted). Thus, Plaintiffs have not adequately explained their failure to exercise due diligence in preserving their legal rights given that Plaintiffs obtained the loan in January 2008, at which point they had the opportunity to investigate any alleged fraud or other improprieties ...

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