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Apostol v. Citimortgage

November 21, 2013


The opinion of the court was delivered by: William H. Orrick, United States District Judge


Currently before the Court are defendants' motions to dismiss. Having considered the papers submitted, and for good cause shown, the Court hereby GRANTS defendants' motions to dismiss.


This action stems from the $460,000 mortgage loan obtained by plaintiff Obed Apostol, Jr. from Argent Lending on October 31, 2006. First Amended Complaint (Docket No. 26), Ex. A. Plaintiff secured the loan with a deed of trust on real property located at 1330 Cedar Court, Gilroy, California (Property). Id. The Deed of Trust (DOT) states that the loan (Note) or any partial interest in the loan "can be sold one or more times without prior notice to the Borrower." FAC, Ex. A ¶ 20. Under the DOT, Argent Mortgage was the original Beneficiary and Town and Country Title Services the original Trustee. FAC, Ex. A. Plaintiff alleges that on or around March 1, 2007, the "mortgage loan" was sold by Argent in a securitization transaction, and ended up being held by the CMLTI 2007-AMC2 Trust. FAC, ¶¶ 2-5. Plaintiff alleges that the laws governing the Trust and/or the Pooling and Servicing Agreement (PSA) governing the Trust, require that the transfer of the loans into the Trust must be completed within three months of the Trust's creation - meaning that both the loan and the DOT had to be assigned from the original entity to the Trust within that time frame. Id. ¶¶ 5-6. However, plaintiff alleges, the official records of the Recorder's Office in the County of Santa Clara do not show that the plaintiff's security interest - the DOT - was assigned from Argent to any other entity on or before the May 30, 2007 deadline required by the PSA. Id. ¶ 8. That created a "material breach of the binding PSA, resulted to an irreversible break in the chain of title." Id. ¶ 9.

On February 11, 2009 (recorded March 2, 2009), defendant Citi Residential Lending, Inc. - acting as the attorney-in-fact for Argent Mortgage - executed a "Corporate Assignment of Deed of Trust," assigning defendant Mortgage Electronic Registration Systems, Inc. (MERS) to be the "nominee" for CitiMortgage, Inc. as Beneficiary under the DOT. FAC, Ex. B. That Corporate Assignment was signed by defendant Crystal Moore and notarized by defendant Bryan Bly. Id. On March 14, 2011 (recorded March 17, 2011), MERS assigned the DOT directly to defendant CitiMortgage, Inc. FAC, Ex. C. Also on March 14, 2011 (recorded March 17, 2011), CitiMortgage, Inc. substituted defendant CR Title Services, Inc. as Trustee in place of Town and Country Title. FAC, Ex. D.

Also on March 14, 2011 (recorded March 17, 2011), CR Title issued a Notice of Default (NOD) to plaintiff. FAC, Ex. E. On July 19, 2011 (recorded July 19, 2011) CT Title issued a Notice of Trustee's Sale (NOTS) to plaintiff. FAC, Ex. F. A second NOTS was issued to plaintiff on April 20, 2012 (recorded on April 24, 2012). FAC, Ex. G. Plaintiff's Property was sold at a trustee's sale and a Trustee's Deed Upon Sale was signed on May 22, 2012 (and recorded on May 23, 2012). FAC, Ex. H.

Plaintiff filed this lawsuit on April 30, 2013, and sues defendants CitiMortgage, Inc., Citi Residential Lending, Inc., CR Title Services, Inc. (collectively "Citi defendants"), MERS, Crystal Moore, and Bryan Bly for claims arising out of the foreclosure and sale of the Property. FAC at 1-2. The gravamen of plaintiff's First Amended Complaint is that the actions taken by the defendants in connection with the sale and securitization of his mortgage loan in 2007, and the foreclosure and trustee's sale on the Property were invalid and/or illegal. As a result, plaintiff contends, the defendants have no right or interest in the Property and title in the Property should be given to plaintiff. See generally FAC. Plaintiff asserts seven causes of action: wrongful foreclosure; constructive fraud; quiet title; failure to comply with conditions precedent; violation of California Civil Code § 2934(a)(1)(A); violation of the Truth in Lending Act, 15 U.S.C. § 1601 et seq.; and violation of California Unfair Competition Law (Cal. Bus. & Prof.Code § 17200, et seq.).

The Citi Defendants and MERS (Financial Entities) move to dismiss, arguing that plaintiff's claims are barred by res judicata because they were or could have been litigated in a case plaintiff lost in the Central District of California. The Financial Entities also argue that plaintiff lacks standing to challenge the assignments of his mortgage loan following the securitization process and any breach of the underlying Pooling and Servicing Agreement (PSA), and that the remainder of plaintiff's claims fail to state a claim. Defendants Crystal Moore and Bryan Bly also move to dismiss, arguing that plaintiff lacks standing to assert claims against Moore and Bly arising out of the assignment of his loan, that plaintiff's claim for constructive fraud should be dismissed because it is barred by the statute of limitations and lack of a fiduciary relationship, and that plaintiff's remaining claims should be dismissed as to Moore and Bly because there are no facts regarding Moore or Bly' s conduct that could give rise to the claims. Plaintiff opposes the motions.


Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege "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 "facial plausibility" standard requires the plaintiff to allege facts that add up to "more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While courts do not require "heightened fact pleading of specifics," a plaintiff must allege facts sufficient "to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555.

In deciding whether the plaintiff has stated a claim upon which relief can be granted, the court must assume that the plaintiff's allegations are true and must draw all reasonable inferences in the plaintiff's favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir.1987). However, the court is not required to accept as true "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir.2008). If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The Ninth Circuit has "repeatedly held that a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.2000) (citations and internal quotation marks omitted).



A. Res Judicata

The Citi Defendants and MERS move to dismiss the claims asserted against them as barred by res judicata in light of litigation plaintiff initiated in state court that was removed to the Central District of California. In his state court complaint (the "Initial Complaint"), Apostol (and twelve other individuals) asserted that defendants Citibank N.A. and CitiMortgage failed to allow him to modify his mortgage loan and used improperly notarized and fraudulent documents to transfer his and the other plaintiffs' loans. Initial Complaint, ¶¶ 18, 27, 37, 39.*fn1 Specifically, in the Initial Complaint Apostol asserted a claim for "Privity of Contract" (Initial Complaint at 20), arguing that defendants had no right to enforce the Note and foreclose under the DOT because of improper endorsements and assignments of the mortgage documents, and for violation of the Federal Truth in Lending Act. Apostol also asserted a claim for "Rescission/Mistake/Void Agreement" ( id. at 26), arguing that he executed his loan documents based on a mistaken belief that he was to remain in a borrower/lender relationship with the lender but defendants set up a PSA for the securitized loan and had no interest in the viability of his loan. He also asserted a claim for "Negligence (origination)" ( id. at 28), arguing defendants improperly securitized the loan, which was not in plaintiff's interest and harmed plaintiff. Finally, he asserted a claim for "Negligence (servicing)" ( id. at 37), arguing that defendants failed to act in good faith in the loan modification process.

The Initial Complaint was removed to the United States District Court for the Central District of California, and plaintiff filed a First Amended Complaint (FAC CDCA) on behalf of himself and the other plaintiffs. In the FAC CDCA, plaintiff renamed his first cause of action as "Invalid Assignment," and asserted that there were substantive and procedural defects in the assignment of ownership and the securitization of plaintiff's (and the other plaintiffs') loans. See FAC CDCA at 25 & ¶ 145, Exhibit 4 to Rich Decl. Defendants Citibank and CitiMortgage moved to dismiss. The judge in the Central District dismissed the FAC for improper joinder, leaving only plaintiff Apostol remaining in that action. March 28, 2013 Order (Exhibit 1 to Rich Decl.) at 1. Apostol filed a Second Amended Complaint (SAC CDCA), on behalf of himself and against Citibank, N.A., CitiMortgage, Inc., and Citi Financial Mortgage, Co. Exhibit 3 to Rich Decl. In his SAC, plaintiff asserted causes of action for violation of the Real Estate Settlement Procedures Act (RESPA, 12 U.S.C. § 2601 et seq.), Intentional Infliction of Emotional distress, and Negligence (servicing). The District Court dismissed Apostol's SAC with prejudice, for failure to allege facts sufficient to state a claim. Ex. 1, Rich Decl. The District Court noted that over the course of that action plaintiff had asserted eight causes of action - including the privity of ...

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