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Diunugala v. JP Morgan Chase Bank, N.A.

United States District Court, S.D. California

January 21, 2015

NIMAL SUSANTHA DIUNUGALA, an individual, on behalf of himself and all others similarly situated, Plaintiff,

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For Nimal Susantha Diunugala, an individual, Plaintiff: Lenore Albert, LEAD ATTORNEY, Law Offices of Lenore Albert, Huntington Beach, CA.

For JP Morgan Chase Bank, N.A., The Bank of New York Mellon Trust Company, N.A., American Home Mortgage Servicing, Inc., Power Default Services, Inc., Defendants: Nina Huerta, LEAD ATTORNEY, Locke Lord Bissell & Liddell LLP, Los Angeles, CA; Stephanie Ann Wraight, LEAD ATTORNEY, Locke Lord LLP, Los Angeles, CA.

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WILLIAM Q. HAYES, United States District Judge.

The matters before the Court are the Motion to Dismiss Plaintiff's Second Amended Complaint for Failure to State a Claim (ECF No. 56), and the Motion to Vacate Motion to Certify Class and All Class-Related Dates (ECF No. 65) filed by all Defendants.


On July 25, 2012, Plaintiff Nimal Susantha Diunugala initiated this action by filing the Complaint with the San Diego County Superior Court. (ECF No. 1-2). On August 24, 2012, all Defendants jointly filed a Notice of Removal to this Court, alleging diversity jurisdiction. (ECF No. 1). On August 31, 2012, Defendants filed a motion to dismiss the Complaint. (ECF No. 6). On January 18, 2013, the Court granted Defendants' motion to dismiss the Complaint. (ECF No. 15).

On May 19, 2013, Plaintiff filed the First Amended Complaint. (ECF No. 19). On June 6, 2013, Defendants filed a motion to dismiss the First Amended Complaint. (ECF No. 20). On October 3, 2013, the Court granted in part and denied in part Defendants' motion to dismiss, and dismissed all claims without prejudice except for the cause of action for violation of the Truth in Lending Act, 15 U.S.C. § 1641(g). (ECF No. 29).

On January 21, 2014, the Magistrate Judge issued an Order stating that " [a]ny motion to join other parties, to amend the pleadings, or to file additional pleadings shall be filed on or before February 21, 2014. Fact and class discovery are not bifurcated but class discovery shall be completed by all parties on or before April 25, 2014.... Plaintiff shall file a motion for class certification no later than June 27, 2014." (ECF No. 43 at 1-2).

On May 29, 2014, the Court issued an Order granting Plaintiff's amended motion for leave to file a second amended complaint. (ECF No. 54).

On June 6, 2014, Plaintiff filed the Second Amended Complaint. (ECF No. 55). On June 26, 2014, Defendants American Home Mortgage Servicing, Inc. (" AHMSI" ), JP Morgan Chase Bank, N.A. (" JP Morgan" ), Power Default Services, Inc. (" Power Default" ), and The Bank of New York Mellon Trust Company, N.A. (" BONY" ) filed the motion to dismiss the Second Amended Complaint. (ECF No. 56). On August 20, 2014 Plaintiff filed an

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opposition to the motion to dismiss the Second Amended Complaint. (ECF No. 75).

The Second Amended Complaint asserts the following causes of action: (1) negligence; (2) violation of Real Estate Settlement Procedures Act (" RESPA" ), 12 U.S.C. § 2605; (3) violation of Truth in Lending Act (" TILA" ), 15 U.S.C. § 1641(g); (4) cancellation of documents to set aside the foreclosure sale; (5) fraud; and (6) violation of California Business & Professions Code § 17200. The Second Amended Complaint asserts a class action pursuant to California Business & Professions Code § 17203 on behalf of the following putative class: " [a]ll California residential loan borrowers with loans that originated with American Brokers Conduit that were serviced by AHMSI at the time of their bankruptcy on or about August 6, 2007 and were performing loans; " " [a]ll ... borrowers who received conflicting notifications from defendant AHMSI, BONY or JP Morgan of the identity of their investor, or creditor as required under 15 U.S.C. § 1641(g) after May 5, 2009; " and " [a]ll ... borrowers who received conflicting notifications from defendant AHMSI of the identity of their investor, or creditor as required under 12 U.S.C. § 2605 within the past two years." (ECF No. 55 ¶ 102).

On August 26, 2014, Defendants AHMSI, JP Morgan, Power Default, and BONY filed a reply to the Plaintiff's opposition to the motion to dismiss the Second Amended Complaint. (ECF No. 76).

On June 27, 2014, Plaintiff filed a motion to certify class. (ECF No. 57). On July 21, 2014, Defendants filed the motion to vacate motion to certify class and all class-related dates. (ECF No. 65).


American Home Mortgage Corp., doing business as American Brokers Conduit, and American Home Mortgage Servicing, Inc. (" AHMSI" ) are wholly owned subsidiaries of American Home Mortgage Holdings, Inc., which, in turn, is a wholly owned subsidiary of American Home Investment Corp. (ECF No. 55 ¶ 4)

" In early 2006, Plaintiff purchased real property at 987 Merced River Road in Chula Vista, California, 91913 ... as his personal residence." Id. ¶ 13. " Plaintiff used approximately $206,458.33 of his cash savings as a down payment on the home to be secured by a conventional loan from American Broker Conduit." Id. ¶ 14. " [P]laintiff was not put in a conventional loan product.... Instead he was given a predatory LIBOR loan ... which did not accurately reflect the full amortizing monthly mortgage obligation." Id. ¶ 15. " [Plaintiff's] initial monthly payments were $1,752.06 per month." Id. ¶ 15.

" JP Morgan [] and American Home Mortgage Investment Corp. and American Mortgage Corp. entered into a secured revolving warehouse facility on January 24, 2006 with JP Morgan as Administrative Agent and sole Lender pursuant to a Secured Credit Agreement granting a first lien and security interest in ... the pledged residential loans upon which the warehousing financing was to be extended." Id. ¶ 18. " On August 1, 2007, JP Morgan sent a Notice of Default to American Home Mortgage Interest Corp. and American Home Mortgage Corp. declaring a default under the [w]arehouse [f]acility." Id. ¶ 19. " [O]n or about August 3, 2007[,] American Broker Conduit (including AHMSI) was ordered to cease and desist all mortgage operations in California." Id. ¶ 35. " On August 6, 2007, American Home Mortgage Interest Corp. and American Home Mortgage Corp. filed bankruptcy under Chapter 11 of the U.S. Bankruptcy Code." Id. ¶ 20.

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" After [Plaintiff] returned [from active military duty], ... [P]laintiff contacted [American Home Mortgage Servicing, Inc. (" AHMSI" )] at phone number 1-877-304-3100 where he was directed to the Loan Administration -- Research Department and explained that he wanted to modify his loan." Id. ¶ 28. " Plaintiff ... wanted a fixed rate conventional loan which he expected to receive when he originally bought the home." Id. ¶ 29. " In or about November 27, 2007, the AHMSI representative on the telephone, who did not disclose his name, told [P]laintiff he could obtain a fixed rate loan with payments similar to the monthly payment of $1,752.06 he was making per month, if he sent in an additional $31,752.06 to pay towards his principal." Id. ¶ 30. " AHMSI never informed Plaintiff of their bankruptcy filing that preceding August; and AHMSI never submitted a " Goodbye" letter to [P]laintiff to inform Plaintiff of any change in servicing or ownership." Id. ¶ 31. " So on November 27, 2007[,] [P]laintiff withdrew $30,000 from his IRA account and sent AHMSI an additional $31,752.06 ... in reliance on the statements made to him by AHMSI on the phone..." Id. ¶ 32. " AHMSI accepted and cashed the check, but AHMSI did not then offer [P]laintiff the refinancing of his loan as promised." Id. ¶ 33.

" In late 2010, Plaintiff sought legal advice and hired the Law Offices of Shahnaz Hussain to assist him with negotiating a more favorable loan." Id. ¶ 71. " The law firm sent a Qualified Written Request (" QWR" ) to [P]laintiff's servicer, [D]efendant AHMSI." Id. ¶ 72. " By way of a letter dated January 11, 2011 [D]efendant AHMSI responded to the QWR and represented to [P]laintiff that the owner/servicer of his loan was 'Structured Asset Mortgage Investments II Trust 2006-AR5, Mortgage Pass-Through Certificates, Series 2006-AR5' (hereinafter the 'MBS trust')." Id. ¶ 73. The same letter also represented that 'The Bank of New York Mellon Corporation' [(" BONY" )]was the trustee of the MBS trust." Id. ¶ 74.

" Plaintiff was attempting to obtain a loan modification to allow [P]laintiff to remain in his home with an affordable mortgage. Plaintiff's loan applications were being denied based on 'missing paperwork' although [P]laintiff used a HUD approved agency, Community Housing Works to prepare and send his application in with all required documents." Id. ¶ 120.

" Six months after AHMSI represented that BONY was the trustee of the MBS trust and as such was the creditor of Plaintiff's loan, on June 15, 2011, [Defendant] Power Default [Services, Inc. (Power Default" )] caused a Notice of Default and Election to Sell Under Deed of Trust ... to be recorded which stated it was for the benefit of ... JP Morgan ... as trustee for the holders of Structured Asset Mortgage Investments II Inc., Mortgage Pass-Through Certificates, Series 2006-AR5." Id. ¶ 174. " The [Notice of Default] stated Plaintiff was in default in the amount of $27,388.55 as of June 21, 2011," and the " Beneficiary was named 'JP Morgan [] as trustee of the MBS trust." Id. PP 175-76.

" Plaintiff ... alleges ... that his loan was not transferred to the SAMI 2006-AR5 mortgage backed securitized trust in 2006 or at any time prior to October 11, 2007." Id. ¶ 38. " American Broker[] Conduit's license was revoked on October 11, 2007 in California," and therefore " American Broker Conduit did not and could not authorize any assignment of the Plaintiff's deed of trust or note after this time period." Id. ¶ 37. " Plaintiff ... further ... alleges ... that none of the loans 'originated' or 'sold' by American Broker Conduit that were earmarked for the SAMI 2006-[AR]5 and the sister Bear

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Sterns 2006-[AR]5 trust were ever executed, endorsed, properly transferred or otherwise properly delivered by American Broker Conduit to the trusts." Id. ¶ 39.

" On or about February 23, 2009, the U.S. Bankruptcy Court ... appointed ... Steven D. Sass as the Plan Trustee over the estate of American Home Mortgage entities, including ... American Broker Conduit." Id. ¶ 21. " Up to that time, [P]laintiff ... alleges ... that the Debtors in the Chapter 11 case, including American Broker Conduit ... never executed any mortgages, deeds of trust or security deeds granting JP Morgan a security interest in the assets," and " [b]ecause JP Morgan [] never acquired a valid, perfected security interest in any of the assets, [the assets] were still owned by the American Home Mortgage entities, including ... American Broker Conduit." Id. ¶ 22-23.

" HOMEWARD RESIDENTIAL SERVICES, INC. [formerly known as] [AHMSI] ... purported to purchase the same assets of the American Home entities as set forth in that certain Asset Purchase Agreement dated September 25, 2007." Id. ¶ 44. " As part of the Asset Purchase Agreement, STEVEN D. SASS ... as successor in interest to American Home Mortgage Corp., American Home Mortgage Investment Corp. and [AHMSI], asserted that he was supposed to collect reimbursement of all foreclosure services related to the Collateral Mortgages." Id. ¶ 45. " As a result, the debtor and trustee believed the Collateral Mortgages were part of the bankruptcy estate and had not been transferred to JP Morgan [] or Bear Sterns or EMC Mortgage Corporation." Id. ¶ 46. " However, as of February 7, 2014, Homeward Residential, Inc. who collected the foreclosure fees from the borrowers, like [P]laintiff and others refused to reimburse the plan trustee, STEVEN D. SASS." Id. ¶ 47. " Plaintiff ... alleges ... that the loan documents by American Broker Conduit, were not delivered to Bear Sterns, EMC, or JP Morgan [] for transfer into the SAMI 2006-[AR]5 trust until on or after February 2, 2011, if at all." Id. ¶ 49.

" [T]he terms of the Free Writing Prospectus for the SAMI-[AR]5 trust strictly prohibited the servicer from holding the loan file." Id. ¶ 50. " Wells Fargo Bank, N.A. never received the [P]laintiff's loan file according to the terms of the SAMI 2006-[AR]5 trust, in violation of the trust's terms." Id. ¶ 52. " Wells Fargo, N.A. never moved the U.S. Bankruptcy Court to obtain the loan files from [AHMSI] before they were destroyed on or about February 2, 2011." Id. ¶ 53. " As a result ... the SAMI-[AR]5 trust had no right to foreclose on Plaintiff's home or those similarly situated because the loans were never properly transferred or delivered by American Broker Conduit to the SAMI 2006[AR]5 trust as a prerequisite to perfecting any interest or title to the Mortgages or Deeds of Trust." Id. ¶ 54.

" The MBS trust required that all loans being transferred to the trust had to be funded according to the terms of the pooling and servicing agreement [(" PSA" )] ... by the Cutoff Date which was designated to occur on May 1, 2006 with a Closing Date of May 31, 2006..." Id. ¶ 84. " However, the loans by American Broker Conduit, such as [P]laintiff's loan, were not properly transferred into the trust by the Closing Date or the Cut Off Date." Id. ¶ 85. " The four corners of the PSA bind the trust to the only actions which can lawfully be taken with respect to the administration of its assets." Id. ¶ 86.

" The Free Writing Prospectus of this MBS trust filed with the SEC on May 26, 2006 designated [D]efendant[] JP Morgan [] as the trustee." Id. ¶ 87. " Defendant BONY was not made a successor trustee of the MBS trust as set forth in the

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[PSA].... Yet, [D]efendant BONY took title to [P]laintiff's property by way of a Trustee's Deed Upon Sale (" TDUS" ) on April 9, 2012 claiming it was the beneficiary entitled to a credit bit as the trustee of the SAMI 2006-AR5 trust." Id. ¶ 90. " BONY did not initiate the nonjudicial foreclosure. JP Morgan [] initiated the nonjudicial foreclosure representing that it was the beneficiary as the trustee of the SAMI 2006-AR5 trust." Id. P 91. " AHMSI continued to use BONY's underwriting standards when evaluating plaintiff for a loan modification which failed and plaintiff's home was taken at foreclosure auction on April 9, 2012." Id. PP 27-28.



Federal Rule of Civil Procedure 12(b)(6) permits dismissal for " failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). " A pleading that states a claim for relief must contain ... a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory. See Balistreri v. P. Police Depot, 901 F.2d 696, 699 (9th Cir. 1990).

" [A] plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Fed.R.Civ.P. 8(a)(2)). When considering a motion to dismiss, a court must accept as true all " well-pleaded factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). However, a court is not " required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). " In sum, for a complaint to survive a motion to dismiss, the non-conclusory factual content, and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quotations omitted).


A. Negligence

Plaintiff's first cause of action alleges negligence against all Defendants. Plaintiff alleges that Defendants JP Morgan and/or BONY " owed [Plaintiff] a duty of due care pursuant to 15 U.S.C. § 1641(g)[1] to ensure that it gave notice within 30 days of a borrower's loan being transferred or assigned to a new " creditor" or " assignee" as defined in the statute." (ECF No. 55 at 23-24). Plaintiff alleges that AHMSI was acting as Defendant BONY's agent. Plaintiff ...

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