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Bernie Malixi and Katherine A. Malixi v. U.S. Bank

August 9, 2012



Plaintiffs Bernie Malixi and Katherine A. Malixi filed suit in state court against defendants U.S. Bank, N.A. ("U.S. Bank"), Downey Savings and Loan Association ("Downey Savings"), DSL Service Company ("DSL Service"), and FCI Lender Services ("FCI"), bringing claims arising from defendants' allegedly wrongful conduct related to a residential loan. U.S. Bank, successor in interest to the Federal Deposit Insurance Corporation ("FDIC") as receiver for Downey Savings, FCI, and DSL Service (collectively "defendants") then removed the proceeding to this court on the basis of federal question jurisdiction. (Docket No. 1.) Currently before the court is defendants' motion to dismiss the Complaint in its entirety for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). (Docket No. 4.) Counsel for plaintiffs did not bother to file an opposition or statement of non-opposition as required by Local Rule 230(c).

I. Factual and Procedural Background Plaintiffs allegedly obtained a loan in the amount of $617,000 from Downey Savings, which was secured by a Deed of Trust recorded against the property located at 101 Diamond Grove Court in Roseville, California ("the Diamond Grove property"). (Notice of Removal Ex. A ("Compl.") ¶ 10 (Docket No. 1-1); Majam-Simpson Decl. Ex. 1 (Docket No. 4-3).) Following the closure of Downey Savings and appointment of the FDIC as receiver by the Office of Thrift Supervision, U.S. Bank purchased various banking operations and assets previously owned by Downey Savings, including plaintiffs' loan. (Compl. ¶ 13; Defs.' Memo. in Supp. of Mot. to Dismiss at 1:18-21 (Docket No. 4-1).)

A Notice of Default listing the current default as $27,300.21 was recorded on April 20, 2011, and a Notice of Trustee's Sale for August 30, 2011, was recorded on August 1, 2011. (Majam-Simpson Decl. Exs. 2, 4.) U.S. Bank purchased the property for $288,750.00 at a foreclosure sale on April 9, 2012, and a Trustee's Deed Upon Sale was recorded on Wednesday, April 11, 2012. (Id. Ex. 5.)

The allegations in the Complaint primarily focus on alleged improprieties in the loan's "handling and processing," (Compl. ¶¶ 28-38), and on errors that occurred when the loan was securitized, (id. ¶¶ 39-48). Plaintiffs allege that their loan was "improperly handled from its inception" because no defendant ever performed "due diligence in investigation [sic] the legal requirements that this loan should have been processed with." (Id. ¶ 28.) They further allege that sales of the loan occurred without the necessary assignments of the Deed of Trust and because the Note and the Deed of Trust were separated, (id. ¶¶ 2-4, 33-34, 46, 48), and that all defendants "unlawfully sold, assigned, and/or transferred [their] ownership and interest in a Promissory Note and Deed of Trust," (id. ¶ 2). As a result, plaintiffs allege that defendants "cannot establish possession and proper transfer and endorsement" of these documents and hold an "invalid and unperfected security interest" in the Diamond Grove property. (Id. ¶¶ 4, 7.)

The Complaint also alleges problems with the issuance of the loan and with the foreclosure process. First, it alleges that plaintiffs' loan was the result of deceptive and predatory lending because Downey Savings failed to verify that they had the ability to "repay the credit that [had] been extended." (Id. ¶ 21.)

Second, it alleges that no valid Notice of Default was recorded or sent to plaintiffs and that the recorded Notice of Default is invalid. (Id. ¶¶ 35-36.) According to plaintiffs, the notice is invalid because it incorrectly "states that for Plaintiff [sic] to find out the amount she [owes] or to arrange payment, she [sic] must contact 'FCI LENDER SERVICES,'" when, as of the date of the notice, FCI Lender Services had no rights to the property, (id. ¶ 35). The Notice of Default submitted by defendants, however, shows that it instructs plaintiffs to contact U.S. Bank care of FCI Lender Services to find the amount they owe or to arrange payment. (Majam-Simpson Decl. Ex. 2.) Plaintiffs do not allege that U.S. Bank was not the beneficiary.

Finally, plaintiffs additionally allege that they attempted to resolve the controversy that had arisen between the parties by "seeking Clarification of the specifics" of the loan agreement, but that no clarification was provided. (Id. ¶¶ 6, 17-19.) They allege that "[d]ue to DOWNEY having breeched [sic] their duty to respond, there is in existence a Meeting of the Minds between the two Parties. This new Agreement between the Parties stipulates in part that there was a voidable Contact [sic] originally set forth." (Id. ¶ 26.) The Complaint does not articulate the issues plaintiffs were attempting to clarify or the terms of this alleged meeting of the minds.

Plaintiffs bring claims for (1) declaratory relief, (2) injunctive relief, (3) breach of the implied covenant of good faith and fair dealing, (4) rescission, (5) unfair and deceptive acts and practices, (6) cancellation, (7) breach of fiduciary duty, (8) unconscionability, (9) quiet title, (10) wrongful foreclosure, (11) slander of title, (12) securities fraud, (13) trespass on contract, (14) negligence, (15) violation of the California Unfair Competition Law ("UCL"), (16) violation of the Real Estate Settlement Procedures Act ("RESPA"), and (17) fraud.*fn1

(Docket No. 1, Ex. 1.) Now before the court is defendants' unopposed motion to dismiss all claims for failure to state a claim pursuant to Rule 12(b). (Docket No. 4.)

II. Request for Judicial Notice In general, a court may not consider items outside the pleadings when deciding a motion to dismiss, but it may consider items of which it can take judicial notice. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994). A court may take judicial notice of facts "not subject to reasonable dispute" because they are either "(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned." Fed. R. Evid. 201. Judicial notice may properly be taken of matters of public record outside the pleadings. See MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986).

Defendants request that the court judicially notice several recorded documents pertaining to the Diamond Grove property. (See Defs.' Req. for Judicial Notice Exs. 1-5 (Docket No. 4-2).) The court will take judicial notice of these documents, since they are matters of public record whose accuracy cannot be questioned. See Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001).

III. Discussion

To survive a motion to dismiss, a plaintiff must plead "only 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). This "plausibility standard," however, "asks for more than a sheer possibility that a defendant has acted unlawfully," Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), and "[w]here a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.'" Id. (quoting Twombly, 550 U.S. at 557). In deciding whether a plaintiff has stated a claim, the court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322 (1972).

A. Declaratory Relief

Under California law, a request for declaratory relief "operates prospectively, and not merely for the redress of past wrongs." Britz Fertilizers, Inc. v. Bayer Corp., 665 F. Supp. 2d 1142, 1173 (E.D. Cal. 2009) (quoting Babb v. Superior Court, 3 Cal. 3d 841, 848 (1971)). This is because one of the purposes of a declaratory relief is "to enable the parties to shape their conduct so as to avoid a breach." Id. When a litigant has "a fully matured cause of action for money," he must seek damages as his remedy and not declaratory relief. Canova v. Trs. of Imperial Irrigation Dist. Emp. Pension Plan, 150 Cal. App. 4th 1487, 1497 (4th Dist. 2007). He may not use a claim for declaratory relief as a "superfluous 'second cause of action for the determination of identical issues.'" Britz, 665 F. Supp. 2d at 1173 (quoting Hood v. Superior Court, 33 Cal. App. 4th 319, 324 (1995)).

Plaintiffs request that the court declare that defendants have no right to foreclose on the Diamond Grove property. A foreclosure sale, however, has already occurred and the remainder of their claims seek to challenge the validity of that sale. Because plaintiffs' claim for declaratory relief would only address past wrongs and would add nothing to the proceeding in terms of either issues addressed or relief sought, it is inappropriate. See Mangindin v. Washington Mut. Bank, 637 F. Supp. 2d 700, 707 (N.D. Cal. 2009) (dismissing declaratory relief claim as duplicative and unnecessary where plaintiffs sought declaration that defendants did not have the right to foreclose in addition to bringing a variety of claims challenging foreclosure). Accordingly, the court will grant defendants' motion to dismiss this claim.

B. Injunctive Relief

Under California law, requests for injunctive relief have been consistently classified as remedies and not valid causes of action in their own rights. See e.g., Shell Oil Co. v. Richter, 52 Cal. App. 2d 164, 168 (4th Dist. 1942) ("Injunctive relief is a remedy and not, in itself, a cause of action."). Accordingly, the court will grant defendants' motion to dismiss plaintiffs' second cause of action.

C. Breach of the Implied Covenant of Good Faith and Fair Dealing

"Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." Marsu, B.V. v. Walt Disney Co., 185 F.3d 932, 937 (9th Cir. 1999) (quoting Carma Developers, Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 4th 342, 371 (1992)). "A typical formulation of the burden imposed by the implied covenant of good faith and fair dealing is 'that neither party will do anything which will injure the right of the other to receive the benefits of the agreement.'" Andrews v. Mobile Aire Estates, 125 Cal. App. 4th 578, 589 (2005) (quoting Gruenberg v. Aetna Ins. Co., 9 Cal. 3d 566, 573 (1973)).

It appears that plaintiffs allege that all defendants owed them a duty of good faith and fair dealing on the basis of the loan agreement that plaintiffs entered into with Downey Savings. The court does not see, however, how any defendant other then Downey Savings or U.S. Bank as successor in interest to Downey Savings can be said to owe plaintiffs a duty based upon a contract to which it was not a party.

Additionally, nowhere in the Complaint do plaintiffs explain how any defendant's action interfered with their ability to receive the benefits of the loan agreement. Plaintiffs could not have had a legitimate expectation that they could retain ownership of their home without making the required loan payments. All the Complaint contains are allegations that defendants "enjoyed substantial discretionary power affecting" plaintiffs' rights and that they "willfully breached their implied covenant of good faith and fair dealing," causing plaintiffs "injury and . . . the threat of loss of [their] personal home." (Compl. ΒΆΒΆ 61-62.) Such conclusory allegations simply do not meet ...

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