United States District Court, N.D. California
ORDER GRANTING MOTION TO DISMISS WITHOUT LEAVE TO AMEND Re: Dkt. No. 8
YVONNE GONZALEZ ROGERS, District Judge.
Plaintiff Kibby Road, LLC filed this case in state court on February 6, 2015. (Dkt. No. 1 ("Notice of Removal") ¶ 1.) The case stems from the plaintiff's purchase of real property at a trustee sale on January 27, 2015, and the plaintiff's contention that despite clear indication in the notice of foreclosure that the property was being sold subject to a senior lien, the plaintiff should now own the property outright.
The operative complaint asserts causes of action for: (1) equitable subordination; (2) quiet title; (3) cancellation of deed of trust pursuant to California Civil Code § 3412; and (4) declaratory relief. (Notice of Removal, Ex. 2 ("FAC").) Defendant Northern Trust Company removed the case to federal court based on diversity jurisdiction. (Notice of Removal ¶¶ 3-4.) Thereafter, the defendant moved to dismiss, arguing the First Amended Complaint fails to state a claim upon which relief can be granted. (Dkt. No. 8 ("Mot.").) The plaintiff opposed the motion. (Dkt. No. 13 ("Oppo.").) The motion was heard on April 28, 2015.
Having carefully considered the papers submitted, the operative complaint, and the arguments of counsel, and good cause shown, the Court hereby GRANTS the motion and DISMISSES this action WITHOUT LEAVE TO AMEND. For the reasons set forth herein, no basis exists as a matter of law to disrupt the articulated priority of the liens on the property at issue.
The plaintiff purchased the property located at 217 Still Creek Road, Danville, California (the "Danville Property") on January 27, 2015, at a foreclosure sale. (FAC ¶ 2.) At the time of the auction, the defendant held two liens over the property. ( Id. ¶¶ 9-10.) The liens apparently derive from agreements entered into on April 29, 2003. ( Id. ) On that day, the prior owners of the Danville Property: (1) obtained a revolving line of credit in the amount of $100, 000, secured by the property; and (2) refinanced their mortgage and two other outstanding loans secured by the property with a new, thirty-year loan with an original principal amount of $600, 000. ( Id. ) Both of these new loans were provided by the defendant. ( Id. ¶¶ 3, 9-10.) Deeds of trust were recorded for both transactions with an identical timestamp: "Tuesday, MAY 06, 2003 08:00:00." ( Id. ¶ 11, Exs. E-F.) The $100, 000 line of credit lien was given document identification number XXXX-XXXXXXX-XX. (FAC, Ex. F (the "Line of Credit Lien").) The $600, 000 lien was given document number XXXX-XXXXXXX-XX. (FAC, Ex. E (the "Foreclosed Lien").)
Importantly, the Line of Credit Lien indicated it secured the "total amount of the Credit Agreement." (Line of Credit Lien at 1.) "Credit Agreement" is defined as the April 29, 2003 credit agreement with a credit limit of $100, 000, "together with all [subsequent] modifications" thereto. ( Id. at 11.) Since its issuance, the $100, 000 line of credit was increased twice. First, on July 2, 2004, it was increased to $200, 000 (FAC ¶ 32), and a "modification of deed of trust" regarding this increase was recorded on July 12, 2004 (RJN, Ex. 1). Then, on October 28, 2005, the line of credit increased to $500, 000. (FAC ¶ 34.) The second modification was also recorded, on November 7, 2005. (RJN, Ex. 2.) Both modifications specifically noted they related to the Line of Credit Lien. (RJN, Exs. 1-2.)
On April 1, 2014, a Notice of Default was recorded as to the Foreclosed Lien. (RJN, Ex. 3 ("NOD").) The NOD noted multiple times that the Foreclosed Lien was a "Junior Deed of Trust, " and unmistakably explained that the Line of Credit Lien would "REMAIN ON TITLE THROUGH TRUSTEE SALE AND AUCTION" and that "A SUCCESSFUL THIRD PARTY BIDDER WILL TAKE TITLE SUBJECT [TO] SAID SENIOR DEED OF TRUST." ( Id. ) Both liens were clearly identified by their respective document identification numbers. ( Id. )
The Notice of Trustee's Sale was recorded on December 31, 2014, indicating title to the property - again, "subject to" the "senior" Line of Credit Lien - would go to the highest bidder at a January 27, 2015 public auction. (RJN, Ex. 5 ("NOS").) The plaintiff was the successful bidder at the January 27 auction. (FAC ¶ 2.) Thereafter, the defendant sent the plaintiff a notice indicating the plaintiff's interest in the property remains subject to the Line of Credit Lien (including the modifications thereto), now totaling approximately $590, 000. ( Id. ¶ 29.)
In its FAC, the plaintiff alleges (1) a "mistake in recording sequence" (i.e., the plaintiff apparently alleges the Line of Credit Lien was intended to be junior and received the lower identification number in error) or (2) in the alternative, that the subsequent modifications to the Line of Credit Lien, as a "material change, " caused that lien to lose its priority to the Foreclosed Lien. ( Id. ¶¶ 17, 32.) The plaintiff claims that at the trustee sale, it therefore "took the Subject Property free and clear of other liens or lines of credit." ( Id. ¶¶ 18, 24, 28, 34.)
II. LEGAL STANDARD
"Federal Rule of Civil Procedure 8(a)(2) requires only a short and plain statement of the claim showing that the pleader is entitled to relief, ' in order to give the defendant fair notice of what the claim is and the grounds upon which it rests.'" Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 554 (2007) (quoting Fed.R.Civ.P. 8(a)(2)). Even under the liberal pleading standard of Rule 8(a)(2), "a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986) (internal brackets and quotation marks omitted)). The Court will not assume facts not alleged, nor will it draw unwarranted inferences. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) ("Determining whether a complaint states a plausible claim for relief [is] a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.").
Pursuant to Rule 12(b)(6), a complaint may be dismissed for failure to state a claim upon which relief may be granted against that defendant. Dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is proper if there is a "lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (citing Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988)). The complaint must plead "enough facts to state a claim [for] relief that is plausible on its face." Twombly, 550 U.S. at 570. A claim is plausible on its face "when the 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. If the facts alleged do not support a reasonable inference of liability, stronger than a mere possibility, the claim must be dismissed. Id. at 678-79; see also In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (the court is not required to accept as true "allegations that are merely conclusory, ...