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Simmons First National Bank v. Lehman

United States District Court, N.D. California

April 1, 2015

RICHARD C. LEHMAN, et al., Defendants.


DONNA M. RYU, Magistrate Judge.

Plaintiff Simmons First National Bank ("Simmons") brings this action for judicial foreclosure against real property owned by Defendants Richard C. Lehman and Michele D. Koo. Simmons now moves to dismiss Defendants' counterclaims for slander of title, quiet title, and declaratory relief. [Docket No. 116.] On March 23, 2015, Defendants moved for leave to file a sur-reply and submitted their proposed sur-reply. [Docket Nos. 133, 133-1.] The court has determined that this matter is appropriate for determination without a hearing pursuant to Civil Local Rule 7-1(b). Having carefully considered the parties' submissions and the relevant legal authority the court hereby grants Defendants' motion for leave to file a sur-reply and grants Simmons's motion.

I. Facts

A. Factual Background and Procedural History

This dispute concerns a February 4, 2009 deed of trust ("the Deed of Trust") recorded against Defendants' residential property in Woodside, California ("the Woodside property"). As discussed in the court's February 13, 2015 Order on the parties' motions for summary judgment (Docket No. 113 ("MSJs Order"), the Deed of Trust secured a $3 million loan made by Excel Bank ("Excel") to Bonhomme Investment Partners, LLC ("Bonhomme"). At the time Excel made the loan, Defendant Lehman and third party Donald Davis were the sole owners of Bonhomme. In 2013, Lehman transferred his interest in Bonhomme to Lehman and Koo, his wife. (MSJs Order 9.) Excel failed in October 2012 and the Federal Deposit Insurance Corporation ("FDIC") took control of Excel's assets as a receiver. Simmons acquired certain of Excel's assets through a Purchase and Assumption Agreement between Simmons and the FDIC, including the Bonhomme loan and the Deed of Trust. (MSJs Order 1-2.)

On May 22, 2013, Simmons filed a state court complaint against Defendants for judicial foreclosure, specific performance, and injunctive relief. Defendants removed the case to federal court on June 21, 2013. In July 2013, Defendants answered and asserted affirmative defenses, including that they were induced to enter into the loan transactions by oral representations made by Shaun Hayes, a shareholder of Excel's holding company. [Docket Nos. 12 (Koo Answer) ¶ 28, 15 (Lehman Answer) ¶ 28.] They also asserted that "[n]either Defendant Lehman nor Defendant Koo executed the Trust Deed before the notary public who purported to notarize the Trust Deed, " and that the Deed of Trust was fraudulent at its inception. (Koo Answer ¶ 41; Lehman Answer ¶ 41.) At her July 15, 2014 deposition, Koo claimed for the first time that her signature on the Deed of Trust was forged, and later submitted a declaration in which she stated that she did not execute the Deed of Trust, did not authorize anyone to execute the Deed of Trust, and had not met the notary who had notarized the Deed of Trust. (MSJs Order 5; Koo Decl., Nov. 5, 2014, ¶ 2.)

On January 8, 2015, the court granted Simmons leave to file an amended complaint. [Docket No. 91.] On January 9, 2015, Simmons filed an amended complaint, again alleging claims for 1) judicial foreclosure; 2) specific performance; and 3) injunctive relief. It also alleged alternative bases for enforcing the Deed of Trust, including, inter alia, estoppel. [Docket No. 92 (Am. Compl.).] Defendants answered on January 22, 2015, bringing counterclaims for 1) slander and disparagement of title; 2) quiet title; and 3) declaratory judgment. [Docket Nos. 98 (Koo Counterclaims), 99 (Lehman Counterclaims).]

On February 13, 2015, the court granted Simmons's motion for partial summary judgment on Defendants' five fraud-based affirmative defenses on the grounds that they are barred by 12 U.S.C. § 1823(e) and the D'Oench, Duhme doctrine[1]. [Docket No. 113.] The court also denied Defendants' motion for summary judgment on the grounds that genuine issues of material fact exist as to whether Koo signed the Deed of Trust, authorized Lehman to sign the Deed of Trust on her behalf, or should be estopped from disavowing the Deed of Trust.

B. Defendants' Factual Allegations

Defendants assert three counterclaims: 1) slander and disparagement of title; 2) quiet title; and 3) declaratory judgment pursuant to 28 U.S.C. § 2201.

Defendants allege that Koo never executed the Deed of Trust and never authorized anyone to execute it on her behalf; therefore, the Deed of Trust is false and Simmons is aware of its falsity. (Defs.' Counterclaims ¶¶ 59, 60.) They further allege that Excel recorded the Deed of Trust on or about February 17, 2009 in San Mateo County, and that Simmons continues to "publish and rely on the Deed of Trust, " seeking to foreclose on the Woodside Property by means of the Deed of Trust. (Defs.' Counterclaims ¶ 57.) Defendants also allege that the false publication of the Deed of Trust, as well as Simmons's continued reliance upon and attempted enforcement of the Deed of Trust are not protected by any privilege. (Defs.' Counterclaims ¶ 61.) According to Defendants, Simmons's behavior evidences "intentional fraud, oppression and malice, and a conscious disregard for" Defendants' rights. (Defs.' Counterclaims ¶ 64.) Finally, Defendants allege that Simmons's disparagement and slander of title to the Woodside property have resulted in pecuniary loss to Defendants. They assert that its vendibility has been impaired and that they have incurred attorneys' fees and costs to attempt to quiet title to the property. (Defs.' Counterclaims ¶ 63.)

Simmons now moves pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss all of Defendants' counterclaims.

II. Legal Standard

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). When reviewing a motion to dismiss for failure to state a claim, the court must "accept as true all of the factual allegations contained in the complaint, " Erickson v. Pardus, 551 U.S. 89, 94 (2007) (per curiam) (citation omitted), and may dismiss a claim "only where there is no cognizable legal theory" or there is an absence of "sufficient factual matter to state a facially plausible claim to relief." Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010) (citing Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)) (quotation marks omitted). A claim has facial plausibility when a plaintiff "pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citation omitted). In other words, the facts alleged must demonstrate "more than labels and conclusions, and a formulaic recitation of the elements of a ...

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