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Marcial Villarino Iii v. Specialized Loan Servicing LLC (Sls)

October 9, 2012



Plaintiff Marcial Villarino III filed suit in state court against defendants Specialized Loan Servicing LLC ("SLS") and Mortgage Electronic Registration Systems, Inc. ("MERS"),*fn1 bringing claims arising from defendants' allegedly wrongful conduct related to a residential loan. Defendants then removed the case to this court on the basis of diversity jurisdiction.

(Docket No. 2.) 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. 7.)

I. Factual and Procedural Background In 2005, plaintiff and his wife, Patricia Villarino, obtained a loan from Ameriquest Mortgage Company ("Ameriquest") in the amount of $608,000. (Notice of Removal Ex. D ("Compl.") ¶ 6 (Docket No. 2-2); Defs.' Req. for Judicial Notice ("RJN") Ex. 3 (Docket No. 9).) The loan agreement was secured by a Deed of Trust recorded against the property located at 6051 Penela Way in El Dorado Hills, California ("the Penela Way property").*fn2 (RJN Ex. 3.) U.S. Bank National Association was assigned the Deed of Trust in March 2005. (Id. Ex. 4.)

A Notice of Default listing the current default as $18,193.97 was recorded on December 13, 2011, and a Notice of Trustee's Sale for April 5, 2012, was recorded on March 15, 2012. (Id. Exs. 5, 7.)

In his Complaint, plaintiff alleges that he entered into a contract with SLS and the other defendants. (Compl. ¶ 11.) The allegations stemming from this contract primarily focus on defendants' interference with plaintiff's "rights and benefits under the contract," (id. ¶¶ 11-13), and failure to secure plaintiff a loan modification, (id. ¶¶ 14, 18). In particular, plaintiff alleges that defendants drastically inflated late fees and penalties, lost paperwork, and took "exorbitant" amounts of time to review documents. (Id. ¶ 18.) Defendants also allegedly failed to modify plaintiff's loan after he "made a good faith effort to apply for assistance" and threatened foreclosure proceedings and sale of his home. (Id.)

Plaintiff next alleges that defendants breached their duty of care "to ensure that Plaintiff's contractual rights would be protected, and specifically that the borrowers would be eligible for the HAMP program or any other traditional modification programs available."*fn3 (Id. ¶¶ 14-15.) Relatedly, plaintiff also alleges to have suffered emotional distress. First, defendants are alleged to have had a duty "to honor the contractual rights of plaintiff to receive the benefits of the HAMP program" and were negligent in failing to communicate with plaintiff concerning modification of his loan. (Id. ¶¶ 29-30.) By alerting plaintiff that his home could potentially be foreclosed on, as well as sending letters and making phone calls threatening to remove him from his home, defendants led plaintiff to "a state of emotional panic." (Id. ¶¶ 29-32.) Second, defendants are alleged to have "engaged in a negligent and unlawful course of conduct solely to wrongfully obtain money and property from Plaintiff" that has resulted in "severe emotional anguish." (Id. ¶ 33.)

Finally, plaintiff alleges that MERS is the vehicle through which "[d]efendants have accomplished their illegal objectives." (Id. ¶ 22) Defendants allegedly used MERS to put "intentionally ambiguous and infinitely malleable provisions pertaining to MERS" in new mortgages, (id. ¶ 21), and to ensure that "the average consumer, or even legal professional, can never determine who or what was or is ultimately receiving the benefits of any mortgage payments," (id. ¶ 23). Apparently through the "artifice" of MERS, defendants are alleged to have transformed and "sabotage[d]" the legal system to prevent borrowers from obtaining redress. (Id. ¶¶ 25-26.) Although plaintiff alleges that MERS is neither the original lender of plaintiff's loan nor its current beneficiary or servicer, he contends that MERS "has been and continues to knowingly and intentionally illegally and fraudulently record mortgages and conduct business in California" for some of the defendants. (Id. ¶ 27.)

Plaintiff brings claims for (1) breach of contract, (2) negligence, (3) breach of the implied covenant of good faith and fair dealing, (4) negligent inflection of emotional distress, (5) intentional inflection of emotional distress, and (6) injunctive relief. Defendants now move to dismiss all claims for failure to state a claim pursuant to Rule 12(b)(6). (Docket No. 7.) Plaintiff failed to file an opposition or statement of non-opposition as required by Local Rule 230(c).

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 Penela Way property. (See RJN Exs. 1-7.) 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). The court will also take judicial notice of the plaintiff's bankruptcy court filing, see RJN Ex. 8, because it likewise is a matter of public record whose accuracy cannot be questioned. See Rosal v. First Fed. Bank of Cal., 671 F. Supp. 2d 1111, 1121 (N.D. Cal. 2009) (taking judicial notice of bankruptcy filings).

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. Claims Against MERS "MERS is a private electronic database, operated by MERSCORP, Inc., that tracks the transfer of the 'beneficial interest' in home loans, as well as any changes in loan servicers." Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1038 (9th Cir. 2011). Recently, the Ninth Circuit, "far from concluding that MERS was some sort of sham organization," instead determined "that MERS was a legitimate organization." Velasco v. Sec. Nat. Mortg. Co., 823 F. Supp. 2d 1061, 1073 (D. Haw. 2011); see Cervantes, 656 F.3d at 1041-42 (dismissing with prejudice plaintiff's fraud claim based on allegations "that MERS members conspired to commit fraud by using MERS as a sham beneficiary, promoting and facilitating predatory lending practices through the use of MERS, and making it impossible for borrowers or regulators to track the changes in lenders"). Despite the Complaint's extended ...

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