This matter is before the court on the motion of defendants Aurora Bank FSB (Aurora) and Aurora Loan Services, LLC ("ALS") (collectively, "defendants") to dismiss plaintiffs' first amended complaint ("FAC") under Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, defendants' motion is granted.*fn1
This is a mass-joinder action involving twenty-four plaintiffs alleging that defendants, involved in the origination and servicing of plaintiffs' residential mortgages, deceived them as to the nature of the mortgagor-mortgagee relationship they were entering at the time of origination. Plaintiffs filed their original complaint in California State Superior Court for the County of Sacramento. (See Notice of Removal ("NOR"), ECF 1, Ex 1.) Defendants timely removed to this court in accordance with 28 U.S.C. § 1441(b) based on diversity of citizenship under 28 U.S.C. § 1332. (Id.) On February 23, 2012, plaintiffs filed their first amended complaint (FAC) as a matter of course in accordance with Federal Rule of Civil Procedure 15(a)(1)(B).
Defendant Aurora is a federal savings bank ("FSB") governed by the Home Owners Loan Act of 1933 ("HOLA").*fn2 Aurora was originally chartered as "Lehman Brothers Bank, FSB," in June 1999. (Request for Judicial Notice ("RJN"), ECF 27 Ex. A.)*fn3 In 2004, Aurora established ALS as an operating subsidiary. (Id., Exs. B & C; FAC ¶ 37.) ALS, without any change in its relationship to Lehman Brothers Bank, FSB, converted from a corporation to a limited liability company in 2005. (Id., Exs. D & F.) In April 2009, Lehman Brothers Bank, FSB, changed its name to Aurora Bank FSB. (Id., Ex. G.)
The gravamen of plaintiffs' amended complaint*fn4 is that defendants duped plaintiffs into believing they were entering a traditional, arms-length, lender-borrower relationship, when in fact their loans were immediately bundled, packaged and sold to investors. Plaintiffs argue defendants convinced plaintiffs to enter into risky loans defendants knew they could not afford, then dragged their feet when plaintiffs attempted to modify their loans in order to obtaining higher servicing fees for conducting foreclosure proceedings.
Plaintiffs make general allegations, not applicable to plaintiffs here, that defendants engaged in the practice of "robosigning." For example, plaintiffs allege defendants "filed in state and federal courts . . . numerous affidavits or other mortgage-related documents that . . . were not signed or affirmed in the presence of a notary." (FAC ¶ 62.) Plaintiffs allege "[d]efendants knew that plaintiffs' loans would be packed up into" mortgage-backed securities; "that they would recoup monies lent immediately"; and "that [p]laintiffs would be subject to a servicer instead of a lender [that] was limited as to its power to assist [p]laintiffs when issues not foreseeable to [p]laintiffs arose." (Id. ¶ 67.) Plaintiffs further allege, "Aurora has falsely indicated the intent to work with [p]laintiffs through loan modification. But, [p]laintiffs who have entered into the loan modification process have encountered huge obstacles placed by Aurora employees." (Id. ¶ 69.)
The complaint alleges that "[l]enders encouraged brokers to tell potential buyers anything to get them into the subprime loans." (Id. ¶ 75.) Finally, plaintiffs allege "they relied on the representations of the [l]enders that their loans were of good quality" when in fact "they were placed in subprime loans." (Id. ¶¶ 76-77.) Based upon these allegations, plaintiffs assert claims for (1) "Privity of Contract"*fn5 ; (2) Rescission based on mistake; (3) Negligence (origination); (4) Negligence (servicing); and (5) wrongful foreclosure. Defendants argue all of plaintiffs' claims are preempted by federal law. Defendants also argue, in the alternative, that plaintiff cannot state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). The court does not reach defendants' alternative argument, except with respect to the negligence in loan servicing claim.
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." A court may dismiss "based on the lack of cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).
Although a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief," FED.R.CIV. P. 8(a)(2), in order to survive a motion to dismiss this short and plain statement "must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something more than "an unadorned, the-defendant-unlawfully-harmed-me accusation" or "'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action . . . .'" Id. (quoting Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss for failure to state a claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679. Ultimately, the inquiry focuses on the interplay between the factual allegations of the complaint and the dispositive issues of law in the action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).
In making this context-specific evaluation, this court "must presume all factual allegations of the complaint to be true and draw all reasonable inferences in favor of the nonmoving party." Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). This rule does not apply to "'a legal conclusion couched as a factual allegation,'" Papasan v. Allain, 478 U.S. 265, 286 (1986) (quoted in Twombly, 550 U.S. at 555), nor to "allegations that contradict matters properly subject to judicial notice" or to material attached to or incorporated by reference into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). A court's consideration of documents attached to a complaint or incorporated by reference or matter of judicial notice will not convert a motion to dismiss into a motion for summary judgment. United States v. Ritchie, 342 F.3d 903, 907-08 (9th Cir. 2003).
Defendants argue each of plaintiffs' claims comes in the purview of Title 12 Code of Federal Regulations § 560.2 ("Section 560.2"), which "specifically preempts the application to FSB's of any state law purporting to impose [certain] requirements" regarding lending. (Defs.' Mot. to Dismiss ("MTD"), ECF 26 at 3:11-15.) Plaintiffs argue that their claims are not preempted because "[p]laintiffs bring claims based on misrepresentation of material facts . . . ." (Pls.' Opp'n to Defs.' Mot. to Dismiss ("Opp'n"), ECF 39 at 7:19-20.)
A. Federal Law: HOLA and the OTS
Congress enacted HOLA in 1933, following the great crash of 1929, in order to "restore public confidence by creating a nationwide system of federal savings and loan associations to be centrally regulated according to nationwide best practices." Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004 (9th Cir. 2008) (citing Fid. Fed. Sav. & Loan Ass'n v. de la Cuesta, 458 U.S. 141, 160-61 (1982)). Congress's intent in enacting HOLA was "to charter savings associations under federal law" in response to "record numbers of home loans [that] were in default and a staggering number of ...