United States District Court, N.D. California, San Jose Division
ORDER GRANTING MOTIONS TO DISMISS WITHOUT LEAVE TO AMEND AND DENYING MOTION FOR SANCTIONS
LUCY H. KOH, District Judge.
Plaintiff Fareed Sepehry-Fard ("Plaintiff") brings this action against defendants Nationstar Mortgage LLC ("Nationstar"); Clear Recon Corp. ("Clear Recon"); ReconTrust Co. ("ReconTrust"); U.S. Bank National Association ("U.S. Bank"); GreenPoint Mortgage Funding ("GreenPoint"); California Reconveyance Co. ("California Reconveyance"); Marin Reconveyancing Corp. ("Marin Reconveyancing"); Mortgage Electronic Registration Corp. ("MERS"); Harold Lewis; Stacey Roberson; Jay Bray; and John D. Duncan (collectively, "Defendants"). Before the Court is Defendants' various motions to dismiss Plaintiff's Complaint, as well as Plaintiff's motion for sanctions. The Court, having considered the record in this case, the applicable law, and the parties' briefs, GRANTS all Defendants' motions to dismiss without leave to amend and DENIES Plaintiff's motion for sanctions, for the reasons stated below.
A. Factual Background
1. Plaintiff's Purchase and Refinancing of the Saratoga Property
The following information can be gleaned from documents submitted in conjunction with various requests for judicial notice. On April 6, 1998, Plaintiff purchased the real property located at 12309 Saratoga Creek Drive in Saratoga, California with a single loan of $616, 000. ECF No. 11-1. According to Defendants, Plaintiff refinanced the loan on his home several times. ECF No. 7, at 2. Of particular relevance to this lawsuit, on January 10, 2007, Plaintiff borrowed the sum of $1.3 million against the subject property, with GreenPoint acting as the lender, Marin Conveyancing acting as trustee, and MERS acting as the nominee for GreenPoint. ECF No. 11-2. According to the deed of trust executed to secure the loan, MERS, acting as the lender's nominee, could exercise all rights held by the lender. Id. at 3. The deed of trust also provided that the lender could sell Plaintiff's promissory note at any time without notice to Plaintiff. Id. at 11-12. In addition, the deed of trust specified that the lender could at any time substitute a new trustee. Id. at 13.
Also on January 10, 2007, Plaintiff executed a deed of trust to secure a $300, 000 home equity line of credit ("HELOC"), with GreenPoint again acting as the lender, Marin Conveyancing acting as trustee, and MERS acting as the nominee for GreenPoint. ECF No. 11-3. The deed of trust executed for the HELOC also contained provisions permitting the lender to sell Plaintiff's promissory note or substitute a new trustee. Id. at 10-11.
According to Defendants, Plaintiff subsequently defaulted on his loan obligations. See ECF No. 7, at 2. On May 22, 2013 MERS assigned the deed of trust in connection with the $1.3 million loan to Nationstar. ECF No. 12-4. On November 15, 2013, Nationstar executed a substitution of trustee, making Clear Recon the trustee. See ECF No. 3-10.
2. Plaintiff's State Court Litigation in Connection with the Property
On September 23, 2011, Plaintiff filed a lawsuit in Santa Clara Superior Court, naming as defendants Aurora Bank FSB, GreenPoint,  Bank of America, and U.S. Bank. See ECF No. 11-6; Fareed Sepehry-Fard v. Aurora Bank FSB et al., Case No. 111CV209804. Plaintiff's complaint disputed whether the defendants validly owned or transferred the mortgage loans in connection with the subject property. Id. at 2-3. The defendants demurrered to Plaintiff's complaint, and the Superior Court granted the demurrer without leave to amend on October 16, 2012. See ECF No. 11-7. In so doing, the Superior Court held that to the extent Plaintiff was challenging defendants' right to foreclose on his property, "there is no authority providing that a homeowner may seek a determination as to whether the party initiating foreclosure has the authority to do so." Id. at 3. The Superior Court also rejected Plaintiff's contention that defendants are required to provide a "proof of claim" upon foreclosure, as well as Plaintiff's contention that Plaintiff's signature on the deed of trust was forged. Id. The Superior Court entered judgment for defendants on October 16, 2012. ECF No. 11-8. According to Defendants in this lawsuit, Plaintiff's state case is currently on appeal. ECF No. 7, at 3.
3. Plaintiff's First Federal Lawsuit in Connection with the Property
On February 22, 2012-while Plaintiff's suit in Santa Clara Superior Court was still pending-Plaintiff filed a complaint Before Judge Davila in this District. ECF No. 11-9; Fareed Sepehry-Fard v. Aurora Bank et al., No. 12-CV-00871 EJD (" Sepehry-Fard I "). Plaintiff named as defendants in Sepehry-Fard I GreenPoint and U.S. Bank, as well as Aurora Bank FSB, Bank of America, Severson & Werson, and an individual named Frank J. Kim. Id. Plaintiff filed an amended complaint on October 1, 2012, alleging that defendants had no ownership interest in the mortgage loans Plaintiff took out against the subject property, and therefore were not "entitl[ed]... to collect payment or declare default." ECF No. 11-10, at 5. Plaintiff further alleged that Plaintiff's loans were improperly securitized. Id. at 34 (alleging defendants' " entire securitization chain is a scam supporting a Ponzi scheme ") (emphasis in original). Plaintiff also raised claims under 42 U.S.C. §§ 1983 and 1985. See id.
On January 29, 2013, Judge Davila dismissed Sepehry-Fard I with prejudice. See ECF No. 11-11. Judge Davila found that Plaintiff's allegation that defendants had no ownership interest in Plaintiff's mortgage loans stated a claim that defendants could not foreclose on the subject property without producing the property's promissory note. Id. at 5. Judge Davila then went on to state that there was no cognizable legal claim that "the foreclosure process is invalid if the trustee does not possess the original promissory note." Id. According to Judge Davila, California Civil Code § 2924 and its related statutes "establish a comprehensive and exclusive set of regulations for the conduct of nonjudicial foreclosures, and do not require the person initiating foreclosure to have physical possession of the promissory note." Id. Judge Davila also noted that "district courts in California have consistently rejected the contention that the foreclosure process is invalid if the trustee does not possess the original promissory note." Id. (citing cases).
As to Plaintiff's claim that his loan was improperly securitized, Judge Davila found that Plaintiff lacked standing to assert a claim for improper securitization. Id. at 5-6. Judge Davila also found that Plaintiff was not a party or a beneficiary to any securitization agreement, and that other courts had consistently "rejected a general theory based on securitization for failure to state a claim." Id. at 5-6 (collecting and citing cases). Finally, Judge Davila dismissed Plaintiff's claims under 42 U.S.C. §§ 1983 and 1985 on the grounds that none of the defendants were state actors. Id. at 8.
4. Plaintiff's Second Federal Lawsuit in Connection with the Property
On October 1, 2013, approximately eight months after the disposition of Sepehry-Fard I, Plaintiff filed another complaint again before Judge Davila in this District. ECF No. 12-5; Fareed Sepehry-Fard v. GreenPoint et al., 13-CV-04535 (" Sepehry-Fard II "). Plaintiff named as defendants GreenPoint, ReconTrust, U.S. Bank, California Reconveyance, Marin Conveyancing, MERS, and Does 1 through 50. Id. at 1. Again, Plaintiff asserted that defendants lacked authority to foreclose on his property, and demanded that defendants produced "valid enforceable proof of claim." Id. at 12. Plaintiff also appeared to allege that his loans were improperly securitized and therefore were void. Id. at 11. On March 31, 2014, Judge Davila issued an order to show cause as to why the complaint should not be dismissed for lack of jurisdiction. ECF No. 12-6. Judge Davila noted that Plaintiff asserted one cause of action for quiet title under California law. Id. Judge Davila further noted that although Plaintiff raised a claim under the Fair Debt Collections Practices Act (15 US.C. § 1692 et seq. ), Plaintiff failed to allege any facts to support this cause of action. Id. at 2-3. Judge Davila also stated that Plaintiff's claim under the Declaratory Judgment Act (28 U.S.C. § 2201) did not provide an independent basis of federal jurisdiction. Id. at 3. Judge Davila further found that because Plaintiff was a California resident, and because Plaintiff had sued at least two other California residents (California Reconveyance and Marin Conveyancing), Plaintiff had destroyed diversity jurisdiction pursuant to 28 U.S.C. § 1332. Id. at 3-4.
Plaintiff filed a reply to the order to show cause on April 7, 2014. ECF No. 12-7. On April 8, 2014, Judge Davila dismissed Plaintiff's complaint for lack of jurisdiction. ECF No. 12-8. Judge Davila noted that Plaintiff, in his response, attempted only to insert new allegations and theories not in his original complaint. Id. at 1-2.
Plaintiff subsequently filed a motion for leave to file a first amended complaint, which spanned approximately 210 pages. See ECF No. 12-9, 12-10, & 12-11. Plaintiff also filed a motion for reconsideration, ECF No. 12-14, which Judge Davila denied, ECF No. 12-16. On July 1, 2014, Plaintiff appealed the order dismissing his case to the Ninth Circuit Court of Appeals. ECF No. 12-17. Plaintiff's appeal is currently pending. ECF No. 8, at 5. In addition, on August 4, 2014, California Reconveyance filed an administrative motion asking Judge Davila to relate Sepehry-Fard II to the instant case. Case No. 13-CV-04535, ECF No. 154. Judge Davila denied the motion on August 19, 2014. ECF No. 162.
B. Procedural History
On July 16, 2014-approximately two weeks after Plaintiff filed his appeal with the Ninth Circuit in Sepehry-Fard II -Plaintiff filed the instant lawsuit before this Court. In his Complaint, Plaintiff alleges twenty-four causes of action constituting negligent misrepresentation; unfair business practices; violations of the Fair Debt Collection Practices Act; violations of the Racketeering Influenced and Corrupt Organizations Act ("RICO"); violations of 18 U.S.C. §§ 1981 and 1982; claims for accounting; violations of the Truth in Lending Act; violations of the Real Estate Settlement Procedures Act; quiet title; wrongful foreclosure; breach of express and implied agreement; malicious and unlawful conduct; mail fraud; unjust enrichment; and securities fraud. Compl. ¶¶ 193-298. Plaintiff requests attorney's fees, at least $12 million in damages, and declaratory relief. Id. ¶¶ 61, 156, 293.
On August 8, 2014, various defendants filed three separate motions to dismiss Plaintiff's complaint. See ECF No. 7 (motion to dismiss filed by Nationstar, U.S. Bank, ReconTrust, and MERS); ECF No. 8 (motion to dismiss filed by California Reconveyance); ECF No. 9 (motion to dismiss filed by Bray, Lewis, Roberson, and Duncan); ECF No. 10 (motion to dismiss filed by GreenPoint and Marin Reconveyancing). Nationstar, U.S. Bank, ReconTrust, and MERS also filed a request for judicial notice of various documents. ECF No. 11. California Reconveyance also filed a request for judicial notice. ECF No. 12. On August 22, 2014, Plaintiff filed a consolidated opposition to the four motions to dismiss, as well as a request for judicial notice. ECF Nos. 29 & 30. The defendants that had filed motions to dismiss subsequently filed replies on August 29, 2014. See ECF Nos. 33, 34, 35 & 36,
On September 9, 2014, Plaintiff filed a motion for sanctions against all Defendants. ECF No. 45. On September 23, 2014, California Reconveyance filed an opposition to the motion for sanctions, ECF No. 49, as did Nationstar, U.S. Bank, ReconTrust, MERS, Bray, Roberson, and Lewis, ECF No. 52. Plaintiff filed a reply on September 26, 2014. ECF No. 60.
On September 25, 2014, Clear Recon and Duncan filed a motion to dismiss. ECF No. 58. Clear Recon and Duncan also filed a request for judicial notice. ECF No. 57. Plaintiff filed an opposition, which Plaintiff entitled "Objections to Defendants Clear Recon Corp's and John D. Duncan's Motion to Dismiss Plaintiff's Verified Complaint, " on October 9, 2014, as well as a request for judicial notice. ECF Nos. 63 & 64. Clear Recon and Duncan filed a reply on October 21, 2014. ECF No. 65.
On December 2, 2014, this Court ordered supplemental briefing from Plaintiff and Clear Recon on the issue of whether the doctrine of res judicata barred Plaintiff's claims against Clear Recon. ECF No. 101. On December 8, 2014, both Clear Recon and Plaintiff timely filed court-ordered supplemental briefs on this issue. See ECF Nos. 105 & 106.
II. LEGAL STANDARD
A. Motion to Dismiss Under Rule 12(b)(6)
A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency of a complaint. To withstand a motion to dismiss, a plaintiff must "plead enough facts to state a claim that is plausible on its face." Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007). "[A] formulaic recitation of the elements of a cause of action will not do." Id. A court must determine whether the facts in a complaint "plausibly give rise to an entitlement of relief." Ashcroft v. Iqbal, 556 U.S.662, 678 (2009). For purposes of ruling on a Rule 12(b)(6) motion, the Court "accept[s] factual allegations in the complaint as true and construe[s] the pleadings in the light most favorable to the non-moving party." Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). "[A] court may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice." Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). In addition, a court need not accept as true conclusory allegations, unreasonable inferences, legal characterizations, or unwarranted deductions of fact in the complaint. Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir.1994). Furthermore, "[a]lthough a pro se litigant... may be entitled to great leeway when the court construes his pleadings, those pleadings nonetheless must meet some minimum threshold in providing a defendant with notice of what it is that it allegedly did wrong." Brazil v. United States Dep't of Navy, 66 F.3d 193, 199 (9th Cir.1995).
Leave to amend should be granted unless it is clear that the complaint's deficiencies cannot be cured by amendment. Lucas v. Dep't of Corrections, 66 F.3d 245, 248 (9th Cir. 1995). If amendment would be futile, a dismissal may be ordered with prejudice. Dumas v. Kipp, 90 F.3d 386, 393 (9th Cir. 1996).
B. Motion for Sanctions Pursuant to Rule 11
Federal Rule of Civil Procedure 11(c) permits the imposition of any "appropriate sanction" on any attorney or party that makes a pleading, written motion, or other filing for, inter alia, any improper purpose. Fed.R.Civ.P. 11(c). "The central purpose of Rule 11 is to deter baseless filings... [and] Rule 11 imposes a duty on attorneys to certify that they have conducted a reasonable inquiry and have determined that any papers filed with the court are well-grounded in fact, legally tenable, and not interposed for some improper purpose." U.S. ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 254 (9th Cir. 1992) (internal quotation marks omitted). An "improper purpose" is a purpose to "harass or to cause unnecessary delay or needless increase in the cost of litigation." Fed.R.Civ.P. 11(b)(1).
A. Requests for Judicial Notice
The Court first addresses the parties' various requests for judicial notice. Although a district court generally may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion, the Court may take judicial notice of documents referenced in the complaint, as well as matters in the public record, without converting a motion to dismiss into one for summary judgment. See Lee v. City of L.A., 250 F.3d 668, 688-89 (9th Cir. 2001) overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119, 1125-26 (9th Cir. 2002). In addition, the Court may take judicial notice of matters that are either "generally known within the trial court's territorial jurisdiction" or "can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned." Fed.R.Evid. 201(b). Public records, including judgments and other court documents, are proper subjects of judicial notice. See, e.g., United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007). Records filed with a county recorder are also judicially noticeable as undisputed public records. See Disabled Rights Action Comm. v. Las Vegas Events, Inc., 375 F.3d 861, 866 n.1 (9th Cir. 2004).
First, Nationstar, U.S. Bank, ReconTrust, and MERS request judicial notice of various documents. See ECF No. 11. The Court GRANTS this request for judicial notice as to ECF Nos. 11-1, 11-2, 11-3, and 11-5, as these are documents filed with the Santa Clara County Recorder's Office, and the type of documents of which courts routinely take judicial notice. See, e.g., Disabled Rights, 375 F.3d at 866 n.1; Liebelt v. Quality Loan Serv. Corp., No. 09-CV-05867-LHK, 2011 WL 741056, at *6 n.2 (N.D. Cal. Feb. 24, 2011) (taking judicial notice of trustee's deed upon sale); Gardner v. Am. Home Mortg. Servicing, Inc., 691 F.Supp.2d 1192, 1196 (E.D. Cal. 2010) (taking notice of publicly-recorded documents related to foreclosure). The Court also GRANTS the request for judicial notice as to ECF Nos. 11-5, 11-6, 11-7, 11-8, 11-9, 11-10, 11-11, and 11-12, as these are filings in related state and federal court proceedings. See Black, 482 F.3d at 1041. However, the Court DENIES the request for judicial notice as to ECF No. 11-4, as this is merely a copy of defendant's request for judicial notice that appears to have been filed in error.
Second, defendant California Reconveyance requests judicial notice of various documents filed in connection with its motion to dismiss. ECF No. 12. The Court GRANTS California Reconveyance's request for judicial notice as to ECF Nos. 12-1, 12-2, 12-3, and 12-4, as these are documents filed with the Santa Clara County Recorder's Office. See Disabled Rights, 375 F.3d at 866 n.1. The Court also GRANTS California Reconveyance's request for judicial notice as to the remaining 14 documents subject to its request for judicial notice, which consist of filings in related state and federal court proceedings. See Black, 482 F.3d at 1041.
Third, defendants Clear Recon and Duncan request judicial notice of various documents filed in conjunction with their motion to dismiss. See ECF No. 57. Most, if not all, of these documents are ones encompassed in the two other requests for judicial notice filed by the other defendants. The Court GRANTS Clear Recon's and Duncan's request for judicial notice as to ECF Nos. 57-1, 57-2, 57-3, 57-4, 57-6, and 57-8, as these are documents filed with the Santa Clara County Recorder's Office. See Disabled Rights, 375 F.3d at 866 n.1. The Court also GRANTS Clear Recon and ...