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Merritt v. Countrywide Financial Corporation

United States District Court, N.D. California, San Jose Division

October 7, 2014

DAVID MERRITT, et al., Plaintiffs,

ORDER ON REMAND [Re: ECF 141, 142]


On August 11, 2014, this action was remanded from the United States Court of Appeals for the Ninth Circuit and assigned to the undersigned. In accordance with the rulings by the Ninth Circuit, [1] this Court is providing to the parties specific notice of the pleading requirements for each of the claims remaining in this case so as to afford Plaintiffs an opportunity to amend the complaint after receiving guidance from the Court. The Court will set a deadline for filing this amended pleading at the Case Management Conference presently scheduled for October 16, 2014 at 1:30 p.m. To the extent the parties dispute the Court's interpretation of the remaining claims in this action, they should be prepared to address those issues at the Case Management Conference.

The Court interprets the Ninth Circuit's Memorandum Opinion as directing this Court to allow amendment of all claims not expressly dismissed by affirmance of the District Court's October 2009 "Order Granting Defendants' Motions to Dismiss With Prejudice." Order, ECF 125. The Ninth Circuit affirmed dismissal of Plaintiffs' Truth in Lending Act ("TILA") claim based on alleged nondisclosures in March 2006 and Plaintiffs' Real Estate Settlement Procedures Act ("RESPA") claim under Section 9. Mem. Op. ¶¶ 1, 4, ECF 141. Moreover, Plaintiffs, on their own motion, dismissed their claim under 28 U.S.C. § 1985, see Order at 6, n.10, and dismissed defendants Wells Fargo Bank and James Stumpf, see Order of USCA, ECF 138.

As allowed by the Court of Appeals, this Court will not provide a paragraph by paragraph analysis, but rather will set forth the necessary elements of each of the claims remaining in this case. In regard to each and every claim, Plaintiffs are advised that the amended complaint should contain only a "short and plain statement of the claim showing that [they] are entitled to relief." Fed.R.Civ.P. 8(a)(2). Plaintiffs must clearly state how each defendant allegedly violated Plaintiffs' legal rights. "Prolix, confusing complaints" requiring the Court or the Defendants to expend considerable effort to determine the timeline of events or figure out "who is being sued for what" do not "perform the essential functions of a complaint." McHenry v. Renne, 84 F.3d 1172, 1179-80 (9th Cir. 1996).

Moreover, the complaint must include factual allegations, not mere conclusion, and be based on personal knowledge or at least on "information and belief." See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); 5 Charles Alan Wright et al., Fed. Prac. & Proc. Civ. § 1224 (3d ed. 2013) (noting that "permitting allegations on information and belief is a practical necessity"). Although first-hand knowledge is not required at the pleading stage, Plaintiffs, in making the allegations, must in good faith believe them to be true. Pirraglia v. Novell, Inc., 339 F.3d 1182, 1189 (10th Cir. 2003). Plaintiffs should accordingly refrain from making "hypothetical" allegations unsupported by either personal knowledge or a good faith belief in their truth. Fed.R.Civ.P. 11(b). The Ninth Circuit, in issuing its Memorandum Opinion, emphasized that the parties should be reminded that "Rule 11 sanctions may be available, if, at the summary judgment stage, it turns out that any of the plaintiffs' surviving hypothetical' allegations are baseless." Mem. Op. at 5 (citing Zaldivar v. City of Los Angeles, 780 F.2d 823, 831 (9th Cir. 1986)).

Plaintiffs are hereby given leave to amend the following claims from their Second Amended Complaint:

1. First Cause of Action (COA): Truth in Lending Act ("TILA"). Plaintiffs are given leave to amend a portion of their TILA claim. Plaintiffs may amend their claim for rescission of their Home Equity Line of Credit pursuant to 15 U.S.C. § 1635(a) without pleading that they tendered, or that they have the ability to tender, the value of their loan. Written Op. at 9-17, ECF 142. Plaintiffs are advised that the Ninth Circuit left to the discretion of this Court, on a case by case basis at summary judgment or beyond, the determination whether the statutory sequence may be altered under equitable considerations to require tender before rescission. Id. at 17. Plaintiffs may not re-allege their TILA claims for damages arising prior to 2009; they may allege their damages claim under TILA for separate violations occurring in February 2009.

2. Second COA: Real Estate Settlement Procedures Act ("RESPA"). Plaintiffs alleged claims under three sections of RESPA, including Sections 6, 8, and 9. The Ninth Circuit affirmed dismissal of the Section 9 claim and it may not be re-alleged. The remaining claims are as follows:

a. Plaintiffs may amend their RESPA Section 6 claim for failure to respond to timely inquiries regarding the servicing of Plaintiffs' loans. See 12 U.S.C. § 2605(e). Plaintiffs are encouraged, though not required, to attach the letters they sent to Defendants so that the Court may determine whether they were "qualified written requests" triggering a duty to respond. Medrano v. Flagstar Bank, FSB, 704 F.3d 661, 666 (9th Cir. 2012) ("under § 2605(e), a borrower's inquiry requires a response as long as it (1) reasonably identifies the borrower's name and account, (2) either states the borrower's reasons for belief... that the account is in error' or provides sufficient detail to the servicer regarding other information sought by the borrower, ' and (3) seeks information relating to the servicing of [the] loan, " wherein "servicing" "does not include the transactions and circumstances surrounding a loan's origination").

b. Plaintiffs may amend their RESPA Section 8 claims. The Ninth Circuit held that these RESPA claims are subject to equitable tolling of the statute of limitations. Written Op. at 22-32. In order to successfully plead a timely claim under RESPA, Plaintiffs must allege facts showing the date on which they discovered or had a reasonable opportunity to discover the alleged RESPA Section 8 violations.

Additionally, if Plaintiffs intend to pursue their claim for violation of RESPA Section 8(a), they must allege facts indicating that Defendants referred business incident to or a part of a real estate settlement service in exchange for a kickback, fee, or thing of value, and that Defendants charged Plaintiffs for the settlement services involved in the violation. 12 U.S.C. § 2607(a); see Written Op. at 21-22. If Plaintiffs intend to pursue a claim for violation of RESPA Section 8(b), they must allege facts indicating that Defendants charged them for real estate settlement services that were not actually performed. 12 U.S.C. § 2607(b); see Martinez v. Wells Fargo Home Mortgage, Inc., 598 F.3d 549, 553-54 (9th Cir. 2010).

The Court notes that the Ninth Circuit addressed but declined to decide two issues of first impression under RESPA Section 8, namely whether Section 8(b) prohibits markups on third party-provided services for which the consumer is charged, Written Op. at 19-20, and whether, under Section 8(a), an inflated appraisal is a "thing of value" such that Defendants violated Section 8(a) by allegedly referring appraisal business to appraiser Benson in return for an inflated appraisal, id. at 21.

3. Third COA: Race Discrimination under 42 U.S.C. § 1981. Plaintiffs may amend this claim to allege facts showing that (1) they are members of a protected class; (2) that Defendants deprived them of the right to make or enforce contracts; and (3) that Defendants purposefully intended to deny Plaintiffs that right because of their membership in the protected class. See Lindsey v. SLT Los Angeles, LLC, 447 F.3d 1138, 1145 (9th Cir. 2006); see also Domino's Pizza, Inc. v. McDonald, 546 U.S. 470, 476-80 (2006). Where intent is difficult to prove, Plaintiffs may allege facts showing that similarly-situated members of a different protected class (or of a non-protected class) were offered the contractual services that were denied to Plaintiffs. See Lindsey, 447 F.3d at 1145; see also Ennix v. Stanten, 556 F.Supp.2d 1073, 1085 (N.D. Cal. 2008). Plaintiffs are reminded that the Ninth Circuit disapproved of the use of "hypothetical" allegations. Plaintiffs must clearly allege which facts are supported by reasonable information and belief and which facts are hypothetical. "Hypothetical" facts will not be accepted as true for purposes of evaluating the sufficiency of the pleading. See Mem. Op. at 4-5. As currently pled, the SAC does not support a claim for relief under § 1981.

4. Fourth COA: False Advertising under California Business & Professions Code § 17500 and 15 U.S.C. § 1125.[2] Plaintiffs may amend to allege which portion of Section 1125 their claim arises under and facts showing the essential elements of (1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product; (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience; (3) the deception is material, in that it is likely to influence the purchasing decision; (4) the defendant caused its false statement to enter interstate commerce; and (5) the plaintiff has been or is likely to be injured as a result of the false statement. Mohebbi v. Khazen, ___ F.Supp.2d ___, No. 13-CV-03044-BLF, 2014 WL 2861146, at *17 (N.D. Cal. June 23, 2014) (quoting Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 ...

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