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Canatella v. Reverse Mortgage Solutions Inc.

United States District Court, N.D. California

December 17, 2014


For Richard A. Canatella, individually and as Trustee of the Canatela Family Trust, Plaintiff: David Ross Olick, LEAD ATTORNEY, Attorney at Law, San Francisco, CA; Richard A. Canatella, LEAD ATTORNEY, Cotter & Del Carlo, San Francisco, CA.

For Reverse Mortgage Solutions Inc, doing business as Security One Lending, Defendant: Timothy Matthew Ryan, The Ryan Firm, Irvine, CA.

For Julian Castro, Secretary of the U.S. Department of Housing and Urban Development, Defendant: Carol Federighi, LEAD ATTORNEY, USDJ-Civil Division, Washington, DC.



Plaintiff Richard Canatella (" Canatella") filed his amended complaint, individually and as trustee of the Canatella Family Trust, against Reverse Mortgage Solutions, Inc. (" RMS") and Shaun Donovan, Secretary of the United States Department of Housing and Urban Development (" HUD") on March 10, 2014, asserting counts for: (1) declaratory judgment, against both defendants; (2) violation of the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq. (" ECOA"), against RMS; and (3) violation of California's Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq. (" UCL"), against RMS. (Dkt. No. 22 (" AC") ¶ ¶ 66-91.) These allegations stem from RMS's refusal to provide plaintiff with a reverse mortgage and HUD's purportedly negligent supervision of RMS.

Pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6), defendants filed separate motions to dismiss plaintiff's amended complaint on the grounds that: (1) the Court lacks subject matter jurisdiction; and (2) the amended complaint fails to state a claim upon which relief can be granted. (Dkt. Nos. 25 (" RMS Mot."), 28 (" HUD Mot.").) Canatella opposes both motions. (Dkt. Nos. 27 (" RMS Oppo."), 31 (" HUD Oppo.").) Having carefully considered the papers submitted, the amended complaint, [1] and the arguments of counsel, the Court hereby GRANTS HUD's Motion to Dismiss and GRANTS IN PART RMS's Motion to Dismiss With Leave to Amend as to both defendants.


The amended complaint is not a model of clarity. At times, it appears to be self-contradicting. It also contains substantial legal argument, citations, and conclusions--many of which are spurious--intertwined with its factual allegations. In light of these circumstances, the Court gleans the essential facts relative to these motions as follows.[2]

Canatella's principal residence is 357 Vincente Street, San Francisco, CA (" 357 Vincente"). (AC ¶ 58.) The property is worth approximately $1.7 million. (Id. ¶ 54.) He holds the property in fee simple as trustee of an irrevocable trust, the Richard A. Canatella Family Trust, dated June 1, 1978 (the " Trust"), [3] on behalf of its beneficiaries, Canatella's " estranged spouse" and his adult son. (Id. ¶ ¶ 25, 55-58.) When he placed 357 Vincente into the Trust, Canatella reserved for himself a life estate in the residence. (Id. ¶ 62.) A life estate has " questionable value . . . because it is 'subject to complete defeasance at an unknown time.'" (Id. ¶ 62.)

This suit arises from plaintiff's unsuccessful attempt to secure a reverse mortgage on 357 Vincente. A reverse mortgage provides a lump sum or periodic payments to a homeowner from a lender. (Id. ¶ 51.) In exchange, the lender is able to receive back the amount paid plus interest, often not until some triggering event (e.g., the death of the borrower). (Id. ¶ 51.) The loan is secured by a particular property. (Id. ¶ 52.) Because reverse mortgages are often not repaid until the death of the borrower, a lender's sole recourse may be to sell the property at that time. (Id.) Such loans can present substantial risks to lenders. For instance, if a homeowner lives longer than anticipated, accruing significant interest on the loan that far outpaces the appreciation of the property, the lender will be limited in its recovery. (Id.) Therefore, lenders may take advantage of the HUD-insured Home Equity Conversion Mortgage (" HECM") program. (Id.) If a loan qualifies under the program, then HUD provides mortgage insurance to the lender to guard against possible loss. (Id.)

In or around August 2013, after seeing an online advertisement, [4] Canatella approached RMS seeking a reverse mortgage on 357 Vincente. (Id. ¶ ¶ 1, 50.) Plaintiff contacted Homa Rassouli, an RMS reverse mortgage specialist, and thereafter provided RMS with some of his personal and financial information. (Id. ¶ 53.) At Rassouli's insistence, plaintiff and his " estranged spouse" met with a HUD counselor. (Id. ¶ ¶ 25 & n.20, 53.) Rassouli then referred plaintiff to Therese Burgueno, an RMS reverse mortgage consultant. (Id. ¶ 53.) At her request, he turned over copies of the Trust paperwork and the deed to the property in question. (Id.)

Plaintiff indicated that he sought the loan in his own name, with no co-borrowers. (Id. ¶ 55.) Plaintiff has not alleged that he sought the loan on behalf of the trust, but rather he sought a lump sum payment of approximately $460, 000 for his personal use. (Id. ¶ ¶ 34-35, 37-38, 74, 80, 91 (" If plaintiff is unable to raise funds through a HECM loan to either finance his own retirement or continue to maintain and operate his law office to earn a living, plaintiff will be forced to sell the property thereby rendering himself homeless. Under the instant trust all proceeds of sale would go to the beneficiaries with nothing left for plaintiff to relocate or even purchase another property!").) Thus, he apparently sought to extract equity from 347 Vincente by obtaining a loan for a substantial sum secured by the property that is held in trust for the benefit of others, and in which he personally retains only a life estate.

After forwarding plaintiff's loan request to legal counsel, Burgueno informed plaintiff that RMS would not process his application for a reverse mortgage. (Id. ¶ 50.) Burgueno stated that plaintiff was ineligible for a HECM loan because title was held in irrevocable trust and plaintiff, as trustee, lacked a beneficial interest in the property. (Id. ¶ 57.)

Plaintiff filed the instant lawsuit on December 23, 2013. (Dkt. No. 1.) After defendants filed initial motions to dismiss, plaintiff rendered them moot by filing his amended complaint. Plaintiff claims he was eligible for a HECM loan and that RMS's refusal to consider his application was the result of age discrimination. (AC ¶ 16, 19-21, 82.) He also claims HUD is negligently supervising RMS by allowing it to impose its own pre-conditions before issuing HECM loans that he asserts are inconsistent with HUD's regulatory framework. (Id. ¶ 4, 9, 16, 39, 74.) For instance, " RMS would require plaintiff to convey the property to a revocable (as opposed to an irrevocable trust) though an irrevocable trust is the cornerstone of plaintiff's estate plan primarily for the tax benefits such a plan provides." (Id. ¶ 9) In response to these allegations, defendants moved to dismiss on numerous grounds. The Court begins with the Rule 12(b)(1) motion.

II. RULE 12(b)(1)

A motion under Rule 12(b)(1) challenges the grounds for the Court's subject matter jurisdiction. See Fed.R.Civ.P. 12(b)(1). Plaintiff invoked this Court's jurisdiction and consequently bears the burden of establishing subject matter jurisdiction. Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 376-78, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). Because jurisdiction is a threshold question, the Court will address this issue first. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 94, 102, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998).

Both defendants challenge plaintiff's standing to bring this action and move to dismiss pursuant to Fed.R.Civ.P. 12(b)(1), arguing plaintiff lacks standing to bring this case because he has suffered no redressable injury as a result of their conduct. HUD also asserts sovereign immunity. The Court will address each argument in turn.

A. Standing

As a threshold inquiry to the adjudication of any lawsuit, a plaintiff must establish standing under Article III of the U.S. Constitution so that the Court has subject matter jurisdiction. To establish Article III standing, a plaintiff must satisfy three elements: (1) " injury in fact--an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical"; (2) causation--" there must be a causal connection between the injury and the conduct complained of"; and (3) redressability--" it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) (internal quotation marks, citations, and footnote omitted). " At the pleading stage, general factual allegations of injury resulting from the defendant's conduct may suffice, for on a motion to dismiss we 'presum[e] that general allegations embrace those specific facts that are necessary to support the claim.'" Lujan, 504 U.S. at 561. As to each claim, defendants argue plaintiff has failed to satisfy all three necessary prongs to establish standing: injury in fact, causation, and redressability.

Plaintiff alleges RMS is guilty of false advertising and certain statutory procedural violations in connection with his UCL claim. He also alleges he was wrongfully denied a mortgage as a result of age discrimination by RMS. Wrongful denial of a mortgage application is a cognizable injury in fact. The questions remain whether such injury was caused by, or is redressable by, either defendant.

i. Standing as to HUD

Plaintiff asserts only Count I (for declaratory judgment) against HUD. The Court finds that plaintiff's purported injury could not have been caused by, [5] and is not redressable by, HUD. The Court understands this count to seek declaratory judgment according to the theory that HUD negligently supervised RMS, thereby failing to protect plaintiff from a purportedly unlawful denial of his loan application, and to request as relief an order directing HUD to require RMS to issue a HECM loan to plaintiff. Plaintiff, however, does not allege that HUD had any involvement in RMS's decision in regards to his specific application. Moreover, he has failed to put forth any authority demonstrating HUD has both (1) an affirmative duty to supervise lenders' decisions as to specific HECM loan applications and (2) the ability to order RMS to offer a reverse mortgage to plaintiff. HUD presents authority that suggests it has no such supervisory right or obligation under any of the statutory regimes raised by plaintiff. See, e.g., 15 U.S.C. § 1691c (regarding the ECOA); Marinoff v. U.S. Dep't of Housing & Urban Dev., 892 F.Supp. 493, 496 (S.D.N.Y. 1995) (regarding the Fair Housing Act). Because the only claim alleged against HUD is one for declaratory relief, essentially requiring HUD to force RMS to issue a mortgage to plaintiff, and plaintiff has not demonstrated that HUD has that authority, plaintiff has no standing to assert his claims against HUD based on the allegations in the operative complaint.

Even if plaintiff did have standing to assert his claims against HUD, the Court would decline to exercise its jurisdiction under the Declaratory Judgment Act as HUD has not yet taken any direct action in connection with plaintiff. The Declaratory Judgment Act, 28 U.S.C. § 2201(a), provides that " [i]n a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." Because the exercise of jurisdiction under the Act is not compulsory, even when a district court clearly has jurisdiction under the Declaratory Judgment Act, it may decline, in its discretion, to exercise that jurisdiction if it determines that declaratory relief is not appropriate. Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942). The Court finds it would be a waste of judicial resources to address the question of whether HUD is obligated to insure, under the HECM program, a loan to plaintiff unless and until HUD refuses to do so. See ...

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