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Carnero v. ELK Grove Financial, Inc.

United States District Court, N.D. California, San Jose Division

April 6, 2017

JOSE R CARNERO, ET AL., Plaintiffs,
ELK GROVE FINANCIAL, LLC, et al., Defendants.


          BETH LAB SON FREEMAN, United States District Judge

         Plaintiffs Jose and Marta Carnero (the “Carneros”) filed this action in June 2016 alleging causes of action based on violations of the Truth in Lending Act, quiet title, and other claims. Compl., ECF 1; First Am. Compl. (“FAC”), ECF 25. Before the Court are motions to dismiss filed separately by Defendant Elk Grove Financial, LLC (“Elk Grove”) and Defendant Special Default Services, Inc. (“SDS”). ECF 28, 38, 49, 56. The Carneros have also filed a noticed motion to stay a foreclosure sale. ECF 57. Pursuant to Civ. L.R. 7-1(b), the Court finds the parties' motions suitable for submission without oral argument and hereby VACATES the hearings scheduled for June 8 and September 7, 2017. For reasons set forth below, the Court GRANTS Defendants' motions and DENIES the Carneros' motion.

         I. BACKGROUND

         In 2007, the Carneros obtained a mortgage loan from non-party Bear Stearns Residential Mortgage Company which was secured by a deed of trust on a property located at 1558 Minnesota Avenue, San Jose, CA 95125 (the “Property”). Deed of Trust (“DOT”), Ex. A to FAC, ECF 25-1; FAC 6. The Carneros allege that at the time of financing, an associate named Randy Miguel made promises on the amount of monthly mortgage payments and did not provide any disclosures prior to the signing of loan documents. Id. at 6-17.

         The deed of trust ultimately was assigned to Elk Grove, and Elk Grove substituted SDS as the trustee. Assignments of Deed of Trust, Exs. 2-4 to FAC, ECF 25-2; Substitution of Trustee, Ex. 5 to FAC, ECF 25-2. On February 29, 2016, SDS recorded a Notice of Default and Election to Sell under Deed of Trust, stating that the Carneros were approximately $87, 000 in arrears on their mortgage. Notice of Default, Ex. 6 to FAC, ECF 25-2.

         On March 30, 2016, the Carneros sent SDS a Notice of Rescission, purporting to rescind the 2007 mortgage loan transaction. Notice of Rescission, Ex. 10 to FAC, ECF 25-3. They filed this action on June 27, 2016 against Elk Grove and SDS, as well as the loan servicer, Land Home Financial Services. Compl., ECF 1. The Carneros also filed an application for a temporary restraining order (“TRO”) seeking to enjoin the nonjudicial foreclosure sale, which had been scheduled for July 6, 2016. TRO Appl., ECF 6; Notice of Trustee's Sale, Ex. 14 to FAC, ECF 25-5. This Court denied the TRO application, concluding that diversity jurisdiction did not lie; the Carneros' only substantive federal claim, asserted under the Truth in Lending Act (“TILA”), was inadequate; and there was no basis for the Court to exercise supplemental jurisdiction over the remaining state law claims absent a viable federal claim. See Order Denying Plaintiffs' Appl. for TRO, ECF 13.

         The Carneros nonetheless staved off foreclosure by filing a Chapter 7 bankruptcy petition on July 5, 2016, the day before the scheduled sale. See Ch. 7 Petition, Dkt. No. 1, No. 16-br-51967-SLJ (Bankr. N.D. Cal. 2016). They filed a notice of the automatic bankruptcy stay in this action on July 11, 2016. Notice of Stay of Proceedings, ECF 17. The bankruptcy was discharged on October 12, 2016, and the foreclosure sale was rescheduled for November 28, 2016. Discharge of Debtor and Final Decree, Dkt. No. 20, No. 16-br-51967-SLJ; Second TRO Appl. 6, ECF 31. The bankruptcy case was reopened on November 17, 2016 for the purpose of permitting the Carneros to file an adversary proceeding to determine the dischargeability of student loan debts. Order Granting Motion to Reopen Case, Dkt. No. 26, No. 16-br-51967-SLJ. The Carneros once again sought a TRO to enjoin the foreclosure sale and requested a notice of lis pendens on November 21, 2016, both of which the Court subsequently denied. ECF 36.

         On October 7, 2016, the Carneros filed the operative first amended complaint (“FAC”), again alleging a single substantive federal claim under TILA and numerous state law claims. FAC. SDS moved to dismiss the FAC and served its motion papers on the Carneros via overnight mail on November 4, 2016. SDS Mot., ECF 28. Elk Grove separately filed a motion to dismiss the FAC and also served its motion papers on the Carneros via overnight mail on November 23, 2016. EG Mot., ECF 38. However, the Carneros stated in a letter to the Court filed on January 5, 2017, that they had not received the motions to dismiss, thus no opposition was filed. ECF 45. SDS then re-noticed its motion to dismiss on January 26, 2017, ECF 49, and Elk Grove re-noticed its motion on March 1, 2017, ECF 56. The Carneros then filed an opposition to SDS's re-noticed motion to dismiss but did not oppose Elk Grove's re-noticed motion to dismiss. Opp'n, ECF 52. The Court has considered the Carneros' opposition in relation to both motions to dismiss. On March 21, 2017, the Carneros filed a noticed motion to stay foreclosure, allegedly scheduled for March 22, 2017. ECF 57.


         “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted ‘tests the legal sufficiency of a claim.'” Conservation Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts as true all well-pled factual allegations and construes them in the light most favorable to the plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the Court need not “accept as true allegations that contradict matters properly subject to judicial notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (internal quotation marks and citations omitted). While a complaint need not contain detailed factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.


         Before turning to the merits of these arguments, the Court addresses SDS and Elk Grove's requests for judicial notice.

         A. Judicial Notice

         SDS has requested judicial notice of seven documents, attached to the request as Exhibits A through G: (A) Deed of Trust (“DOT”); (B) Assignment of DOT from Mortgage Electronic Registration System, Inc. to Bayview Loan Servicing, LLC recorded on May 21, 2012; (C) Assignment of Mortgage/DOT from Bayview Loan Servicing, LLC to Bucks Financial V, LLC recorded on April 10, 2014; (D) Assignment of Mortgage/DOT from Bucks Financial V, LLC to Elk Grove Financial, LLC recorded on January 20, 2016; (E) Substitution of Trustee recorded on February 29, 2016, in which Elk Grove substituted SDS as trustee; (F) Notice of Default recorded on February 29, 2016; and (G) Notice of Trustee's Sale ...

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