ORDER ON DEFENDANTS'
MOTION TO DISMISS
PURSUANT TO F.R.C.P. 12(b)(6)
This is an action for declaratory and injunctive relief and for statutory damages by plaintiffs Julita Rupisan and Ernesto Rupisan ("Plaintiffs") against defendants JP Morgan Chase Bank, California Reconveyance Company, Deutsche Bank National Trust Company and Shea Mortgage ("Defendants"). Currently before the court are two motions to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Both motions were filed on March 9, 2012; the first was filed by Shea Mortgage and the second was filed by JP Morgan Chase Bank, California Reconveyance Company and Deutsche Bank National Trust Company. Federal subject matter jurisdiction exists pursuant to 28 U.S.C. § 1331. Venue is proper in this court.
FACTUAL BACKGROUND -- PLAINTIFFS' COMPLAINT
Plaintiffs' complaint alleges a total of 24 claims for relief. Of these, two appear to directly allege violation of federal statutes, five appear to be requests for declaratory or injunctive relief, ten appear to allege violation of specific state statutes, four appear to allege non-statutory tort claims and one claim, wrongful foreclosure, appears to allege violation of a number of state and federal statutes. Plaintiffs' final claim for relief requests a temporary restraining order. Plaintiffs also allege a claim to quiet title.
The bulk of Plaintiffs' factual allegations are not allegations of specific acts directed at specific Defendants; rather most of the section of the complaint that is designated "Factual Allegations" is comprised of a lengthy narrative describing questionable, unethical or unlawful practices by the home financing industry generally. Of significance to the motion by Defendant Shea Mortgage ("Shea"), the complaint alleges nothing factual at all with respect to Shea. Otherwise, to the extent any particular defendant is mentioned in the complaint, that defendant is JP Morgan Chase ("JP Morgan"). What is clear from the complaint is that on or about October 31, 2006, Plaintiffs executed a consumer credit transaction obtaining a mortgage loan in the sum of $581,764. Plaintiffs allege the lender was JP Morgan and the promissory note was secured by a First Trust Deed on the Property which is located in Patterson, California. The loan obtained is described by Plaintiffs as a "subprime" Option Adjustable Rate Mortgage ("Option-ARM"). It is also not disputed that the complaint in this action was filed on March 2, 2012.
Additional information is available from the memorandum in support of the motion to dismiss by Defendants JP Morgan, California Reconveyance Co. and Deutsche Bank National Trust Co. (hereinafter, the "JP Morgan Motion"). Doc. # 5. Based on documents subject to judicial notice, JP Morgan's Motion establishes that Plaintiffs defaulted on their loan and a notice of default was recorded on May 12, 2009. Apparently the notice filed on May 12, 2009, replaced a prior notice of default that was rescinded and "contained the requisite declaration pursuant to [California] Civil Code Section 2923.5." Doc. # 5 at 10:26-27. As Defendants point out, Plaintiffs do not allege they have offered tender on the loan amount or that they are current in loan payments. JP Morgan further alleges that the deed of trust was assigned to Deutsche Bank National Trust and a Notice of Trustee's Sale was recorded on July 21, 2010.
The JP Morgan Defendants and Shea filed their motions to dismiss on March 9, 2012. Plaintiffs filed their opposition to both motions to dismiss on April 24, 2012.
A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure can be based on the failure to allege a cognizable legal theory or the failure to allege sufficient facts under a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir.1984). To withstand a motion to dismiss pursuant to Rule 12(b)(6), a complaint must set forth factual allegations sufficient "to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) ("Twombly"). While a court considering a motion to dismiss must accept as true the allegations of the complaint in question, Hospital Bldg. Co. v. Rex Hospital Trustees, 425 U.S. 738, 740 (1976), and must construe the pleading in the light most favorable to the party opposing the motion, and resolve factual disputes in the pleader's favor, Jenkins v. McKeithen, 395 U.S. 411, 421, reh'g denied, 396 U.S. 869 (1969), the allegations must be factual in nature. See Twombly, 550 U.S. at 555 ("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"). The pleading standard set by Rule 8 of the Federal Rules of Civil Procedure "does not require 'detailed factual allegations,' but it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) ("Iqbal").
The Ninth Circuit follows the methodological approach set forth in Iqbal for the assessment of a plaintiff's complaint:
"[A] court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief."
Moss v. U.S. Secret Service, 572 F.3d 962, 970 (9th Cir. 2009) (quoting Iqbal, 129 S.Ct. at 1950).
Plaintiffs' complaint presents a challenge in organizing an analysis of its many vaguely worded and often duplicative claims. Although Shea and the JP Morgan Defendants have moved for dismissal on somewhat different grounds, there are broadly applicable defenses that, if sustained, would bar many, if not all, of Plaintiffs' claims as to both Defendants. Primary among these is the contention of all Defendant parties that all of Plaintiffs' claims that would normally have accrued as of the date of the execution of the mortgage are now time-barred. Second, to the extent Plaintiffs have asserted claims based on, or sounding in fraud, such claims are subject to dismissal if they fail to meet the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. Third, given that Plaintiffs admittedly have not alleged tender or the ability to tender the loan proceeds, any of the claims for relief that seek rescission of the loan or would otherwise implicate the amount owed by Plaintiffs to Defendants may be barred by Plaintiffs' failure to allege tender of the amount owed. With the goal of conservation of scarce judicial resources in mind, the court will first address the defenses that may be asserted against multiple claims for relief. The court will then address individual claims and defenses as necessary.
I. Statutes of Limitations
A. Truth In Lending Act ("TILA")
The limitations period for a claim for damages under TILA is one year. 15 U.S.C. § 1640(e); Hubbard v. Fidelity Federal Bank, 91 F.3d 75, 79 (9th Cir. 1996). The three-day right of rescission provided by TILA, 15 U.S.C. § 1635(a), may be extended to a maximum period of three years if the lender fails to comply with TILA disclosure requirements. 15 U.S.C. § 1635(f) provides, in pertinent part:
An obligor's right of rescission shall expire three years after the date of consummation of the transaction or upon sale of the property, whichever occurs first, notwithstanding the fact that the information and forms required under this section or any other disclosures required under this part have not been delivered to the obligor. . .
See also Miguel v. Country Funding Corp., 309 F.3d 1161, 1164 (9th Cir. 2002) (§ 1635(f) is a statute of repose, depriving the courts of subject matter jurisdiction when a § 1635 claim is brought outside the three-year limitations period").
While a claim for rescission under section 1635(f) is not subject to equitable tolling, the Ninth Circuit has held that damage claims under TILA may be equitably tolled. King v. California, 784 F.2d 910, 915 (9th Cir. 1987). "Equitable tolling may be applied if, despite all due diligence, a plaintiff is unable to obtain vital information bearing on the existence of his claim." Santa Maria v. Pacific Bell, 202 F.3d 1170, 1178 (9th Cir. 2000). As this court has noted, the doctrine of equitable tolling focuses not on the bad acts of the defendant, but on "whether there was excusable delay by the plaintiff." Aylon v. JP Morgan Chase Bank, 2012 WL 1189455 (E.D. Cal. 2012) at *8. The "mere existence of TILA violations and lack of disclosure does not itself equitably toll the statute of limitations. This is sensible, because it is in line with the generally applicable principles of equitable tolling, and because a contrary rule would render the one-year statute of limitations meaningless, as it would be tolled whenever there were improper disclosures." Garcia v. Wachovia Mort. Corp., 676 F.Supp.2d 895, 906 (C.D. Cal. 2009). Because equitable tolling depends on the plaintiff's diligence in discovering the facts that establish their claim, Plaintiffs have the burden to allege facts in the complaint to justify equitable tolling. See, e.g., Aylon, 2012 WL 1189455 at *10 (equitable tolling denied were insufficient facts to establish it are not alleged in complaint).
"The limitations period [for damages under TILA] runs from the date of a transaction's consummation which is the time that a consumer becomes contractually obligated on a credit transaction. Altman v. PNC Mortgage, 2012 WL 174966 (E.D. Cal. 2012) at *20 (citing Monaco v. Bear Stearns Residential Mortgage Corp., 554 F.Supp.2d 1034, 1039 (C.D. Cal. 2008)). Plaintiffs assert in their complaint that "[a]ny and all statute[s] of limitations relating to disclosures and notices required pursuant to 15 U.S.C. § 1601 et seq. were tolled due to Defendants' failure to effectively provide the required disclosures and notices." Doc. # 1-3 at 14:3-6. In their opposition to Defendants' contentions that Plaintiffs' TILA claims are time-barred, Plaintiffs contend that Plaintiffs' status as persons capable of speaking only limited English justifies equitable tolling pursuant to Gonzales v. Ameriquest Mortgage Co., 2004 WL 2472249 (N.D. Cal. 2004).
Plaintiffs' contention that their TILA claim should be equitably tolled because the required documents were not provided is directly contrary to the conclusion reached in Garcia. As the Garcia court observed, stated time limits on a statute requiring the provision of certain documents and disclosures cannot be tolled until the required documents are provided otherwise any provision of a limitation period would be meaningless. The requirement for diligent effort to discover the factual basis for a claim means, among other things, that a plaintiff must show timely effort in identifying the documents that should have been provided but were not. By the same token, Plaintiffs' reliance on Gonzalez for the proposition that their limited English fluency justifies equitable tolling is misplaced. The plaintiff in Gonzalez alleged diligent effort to discover the factual basis for her claims in her complaint. Most importantly, the plaintiff in Gonzalez alleged in her complaint that she had requested the documents that were not provided but was told by the defendants in that case that she would be required to pay for them. The complaint in Gonzalez was filed only seven days after the limitations period had elapsed. Pineda v. Washington Mutual Bank, 2011 WL 249486 (N.D. Cal. 2011) at *4. District courts in this circuit have held that lack of English fluency, without more, is not a sufficient basis for tolling of TILA's one-year statute of limitations. See Herrera v. Countrywide KB Home Loans, 2010 WL 3516100 (N.D. Cal. 2010 at *2). The court concludes that Plaintiffs in this action have failed to show sufficient cause for tolling of the statute of limitations as to their damage claim under TILA. The claim is therefore time-barred.
Plaintiffs' claim for rescission under TILA is also time-barred by the three-year statute of limitations which, as previously noted, is not subject to equitable tolling.
B. Real Estate Settlement Procedures Act ("RESPA")
Plaintiffs' sixth claim for relief alleges Defendants violated RESPA's prohibition of referral fees or fee-splitting by assessing a "Yield Spread Premium" against Plaintiffs' loan in violation of 12 U.S.C. § 2607(a). RESPA provides a one-year limitations period for damage claims arising from violation of sections 2607. 12 U.S.C. § 2614; Jensen v. Quality Loan Service Corp., 702 F.Supp.2d 1183, 1195 (E.D. Cal. 2010).*fn1 Since fee-splitting and kick-back violations occur, if at all, at the beginning of the loan, "courts have considered the 'occurrence of the violation' as the date the loan closed." Id. The same tolling standards apply to RESPA claims as are discussed above in regard to TILA claims. Shapiro v. Bank of America, 2012 WL 670960 (E.D. Cal. 2012) at *5; see also Jensen, 702 F.Supp.2d at 1195 (citing Santa Maria for the tolling standard applicable to RESPA damage claims).
Plaintiffs allege no additional facts with regard to equitable tolling of their RESPA claim. The court concludes Plaintiffs' RESPA claim are time-barred. Tolling is not appropriate under the facts alleged for the reasons stated above.
C. Claims Under Cal. Civ. Code §§ 1916 et seq.
Section 1916 of the California Civil Code regulates certain practices pertaining to particular types of loans. Of relevance to this action, the section regulates certain aspects of adjustable rate mortgages. Broadly, the portion of the Civil Code encompassed by section 1916 provides requirements for certain specific disclosures at the time the loan is executed and provides certain restrictions on rate changes, principle increases and similar specific loan practices. Pursuant to California Civil Code section 1916 -- 3, a loan of money under terms that violate section 1916 provisions is subject to civil action if such action is brought within one year of payment in violation of the terms of a particular subsection. Where violation of disclosure requirements is alleged, the general three-year limitations period for liability provided by statute pursuant to California Code of Civil Procedure § 338 applies. See Das. V WMC Moirtgage, 831 F.Supp.2d 1147, 1159(N.D. Cal. 2011); Tassan v. Family Lending Services, 2012 WL 2774967 (Cal.App. 1 Dist. 2012).
Plaintiffs' seventh claim for relief alleges the loan provided for monthly changes in interest rates in violation of section 1916.7(b)(2). The statutory limitations period on Plaintiffs' seventh claim for relief appears to be one year from the date of the first interest rate adjustment in violation of the section, which Plaintiffs allege happened in the second month of the loan. At maximum, the limitations period on Plaintiff's seventh claim for relief lapsed three years from the date of execution of the loan agreement. In either event, Plaintiffs' seventh claim for relief is time barred. No facts are provided that would justify equitable tolling.
Plaintiffs' tenth claim for relief alleges Defendants failed to provide proper information at the time the loan agreement was executed. Pursuant to the foregoing, the applicable three-year limitations period began to run at the time the documents were signed, Das v. WMC Mortgage Corp., 831 F.Supp.2d 1147, 1159 (N.D. Cal. 2011), and Plaintiffs' tenth claim for relief is consequently now time-barred. Again, no facts are presented to warrant equitable tolling.
Plaintiffs' thirteenth claim for relief alleges that the loan agreement provided for pre-payment penalty in violation of Cal. Civ. Code § 1916.7(b)(8).*fn2 Plaintiffs have not alleged that they were actually charged a prepayment penalty. To the extent Plaintiffs are alleging the loan agreement was unlawful because of the provision permitting a prepayment penalty, Plaintiffs claim is time barred under both three-year and one-year statutes of limitations for the reasons discussed above. To the extent Plaintiffs' may have intended to allege they were charged a prepayment penalty at some later time, the complaint lacks the facts to establish such a claim.
D. California Civil Code § 1632
Plaintiffs' twelfth claim for relief alleges violation of California Civil Code § 1632, which, like TILA, requires certain disclosures where a contractual negotiation and agreement is carried out in one of a number of designated languages, including Tagalog. "[C]laims under California Civil Code § 1632 are subject to one-year statute of limitations pursuant to California Code of Civil Procedure §340(a). Esoimeme v. Wells Fargo Bank, 2011 WL 3875881 (E.D. Cal. Sept 1, 2011) at *7. Since the notices and translations required by section 1632 are to be provided prior to the execution of the agreement, the statute of limitations has run on Plaintiffs' twelfth claim for relief and that claim is now time barred.
E. Fraud and Fraud-Related Claims
"The applicable statute of limitations governing a fraud cause of action is Cal. Code Civ. Proc. § 338(d), which provides a three year statute of limitations for bringing 'an action on the ground of fraud or mistake.'" Id. at 1166. The three-year limit "begins to run only when the aggrieved party discovers 'the facts constituting the fraud.'" Borberg v. Guardian Life Ins. Co. of America, 171 Cal.App.4th 912, 920 (2 Dist. 2009). As will be discussed below, the court lacks information to determine if there is a viable fraud claim and, if so, when it accrued.
F. Implied Covenant of Good Faith and Fair Dealing
An action on "any contract, obligation or liability founded upon an instrument in writing" must be commenced within four years of accrual of the action. Cal. Code Civ. Pro. §337(1). The acts complained of in Plaintiffs' complaint include withholding of disclosures and required notices and improper underwriting (loan qualification). All these allegations are aimed at conduct occurring at the beginning of the loan. Therefore, the court concludes that Plaintiffs fourth claim for relief for breach of the implied covenant of good faith and fair dealing accrued as of the date the loan agreement was executed. It follows that Plaintiffs' fourth claim for relief is time-barred. As above, Plaintiffs have pled no facts that would entitle them to equitable tolling of their claim.
G. Breach of Fiduciary Duty
The statute of limitations for an alleged breach of fiduciary duty is four years. Cal. Code Civ. Proc., § 343; Stalberg v. Western Title Ins. Co., 230 Cal.App.3d 1223, 1230 (1991). As is usually the case, the limitations period begins to run at the time the plaintiff discovers her claim or when the facts constituting the claim were or could reasonably have been discovered. Id. As will be discussed below, the only party against whom Plaintiff could possibly plead a claim for breach of fiduciary duty is the loan brokerage company, Shea.*fn3
Because Shea could only have been involved at or before the execution of the loan agreement, Plaintiffs' claim against Shea accrued as of the execution of the loan agreement. The court therefore concludes that Plaintiffs' claim against Shea for Breach of Fiduciary Duty is time barred. As above, Plaintiffs have not pled facts to justify equitable tolling.
H. Cal. Bus. & Professions Code § 17200 - (Unfair and Deceptive Acts & Practices)
"A claim for unfair competition under Business and Professions Code section 17200 must be brought within four years of its accrual." Broberg v. Guardian Life Ins. Co., 171 Cal.App.4th 912, 920 (2 Dist. 2009) (citing Cal. Code Civ. Proc. § 338(d)). Although there has been some discussion as to whether the "delayed discovery rule" applies under section 17200, the Broberg court held "we believe the better view is that the time to file a section 17200 cause of action starts to run only when a reasonable person would discovered the factual basis for the claim." Id. at 920-921.
Plaintiffs' sixteenth and twentieth claims for relief appear to be identical in that they both allege unfair, deceptive or fraudulent business practices. Plaintiffs' sixteenth claim is captioned as being alleged pursuant to "Unfair and Deceptive Business Act Practices (UDAP)." Doc. # 1-3 at 38:22. At paragraph 138 of the complaint, Plaintiffs specify that the acts alleged are in violation of California Business and Professions Code § 17200. Plaintiffs' twentieth claim for relief alleges "Predatory Lending" in violation of section 17200. So far as the court can tell, the only difference between the two claims is that Plaintiffs' sixteenth claim for relief is alleged with a bit more particularity. The gravamen of both claims is that the Defendants fraudulently and deceptively failed to disclose required and important information and failed to conduct proper underwriting, all to Plaintiffs' detriment. In the case of both claims for relief, the allegations center around Defendants' conduct at the time of the formation of the loan agreement. Because the claims both concern conduct at the beginning of the loan period, the court concludes that Plaintiffs' claims under section 17200 accrued at or close to the date the loan documents were signed. Even presuming that the delayed discovery rule applies to claims under section 17200, no basis for a finding of delayed discovery of facts is pled. The court concludes Plaintiffs' claims under section 17200 are time-barred.
Based on the foregoing, the court concludes that Plaintiffs' fifth, sixth, seventh, ninth. tenth, twelfth, thirteenth, and seventeenth, claims for relief are time-barred under the facts alleged. In addition Plaintiffs sixteenth and twentieth claims for relief pursuant to section 17200 are time barred to the extent that either the statutory limit of four years has run on claims alleging unfair or fraudulent practices or the statutory limit has run on any claim of unlawful conduct under any other predicate statute. See discussion at sections IV(H) and IV(P), infra.
II. Fraud -- Particularity of Pleading
Rule 9(b) of the Federal Rules of Civil Procedure requires a party to "state with particularity the circumstances constituting fraud. "[W]hile a federal court will examine state law to determine whether the elements of fraud have been pled sufficiently to a cause of action, the Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally imposed rule." Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1103 (9th Cir. 2003). "A pleading is sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that the defendant can prepare an adequate answer to the allegations." Neubronner v. Milken, 6 F.3d 666, 671-672 (9th Cir. 1993). In addition to the who, what when, where and how of the required factual allegations, see Cooper v. Pickett, 137 F.3d 616, 627 (9 Cir. 1997); the pleader must allege the names and/or position of responsibility of the person(s) who made the allegedly fraudulent representation, to whom they spoke and whether the fraudulent representation was written or oral. Tarman v. State Farm Mut. Auto. Ins. Co, 2 Cal.App.4th 153, 157 (1991). In their allegations of fraudulent misrepresentation, it is not sufficient that a party merely assert that a statement was fraudulent; rather, a pleading must state with particularity what was represented that was false and why it was false. In re GlenFed, Inc. Securities Litigation, 42 F.3d 1541, 1547-1548 (9th Cir. 1994).
Plaintiffs' complaint alleges nothing with regard to the acts of individual Defendants. Plaintiffs come closest to making a factual allegation in Paragraph 131 of the complaint which states in its entirety:
The credit application and or W-2's provided by Plaintiffs was [sic] enough, in addition to the application itself for Defendants to know what type of loan should be offered, and what the Plaintiffs could not afford. Any falsification of a credit application by a broker or seller for purposes of securing a loan is de facto fraud. U.S. v. Robinson, 4th Circuit 2004.
Other than the contents of the paragraph cited, Plaintiffs' complaint offers no facts regarding the acts or omissions of any Defendant entity, let alone any particular person. Plaintiffs' opposition to the motions to dismiss offers little more except for an argument that Defendant Shea and the other Defendants were each other's agents. Reading between the lines, the facts alleged suggest that an individual at Shea may have made some kind of statement leading Plaintiffs to believe they could afford the loan thereby inducing them to enter into the loan agreement. Notwithstanding the untimeliness of Plaintiffs' allegations of fraud, the court finds the pleadings insufficient to identify the person who made the allegedly false representations, when and in what context.
Further, the allegations contained in the complaint do not specify what was said or written that was false or fraudulent. An agreement to lend money following submission of unfavorable credit information by a borrower, by itself, cannot logically be construed as a false guarantee of the borrower's ability to repay. It is simply an expression of the lender's willingness to accept the risk of default on the loan because acceptance of that risk is the only factor within the lender's control. See Heagerty v. Home Savings of America, 968 F.2d 1220, 1992 WL 149853 (C.A.9 (Cal.)) ( willingness to lend does not mean that borrower is likely to repay and is not a basis for fraud allegation). While the all-too-common problem of decisions by lending institutions to fund mortgages in the face of facts indicating probable future default is evidence of systemic poor risk management, no court, to this court's knowledge, has found that such practices constitute fraud. It makes no sense to hold that a lending institution that commits to funding a loan thereby becomes the guarantor of the borrowers ability to pay.
The court finds Plaintiffs have failed to state facts sufficient to satisfy the pleading requirements of F.R.C.P. 9(b) by failing to specify the time, place and person who made a false or misleading statement or omission and what the ...