United States District Court, N.D. California
ORDER GRANTING DEFENDANT'S MOTION TO DISMISS Re:
Dkt. No. 8
R. LLOYD United States Magistrate Judge
Aaron Foster (“Plaintiff”), as an individual and
as Trustee of the Michael P. Foster Trust, sues defendant
EquityKey Real Estate Investments L.P.
(“EquityKey”). The complaint includes seven
claims related to an agreement concerning real property
between EquityKey and Plaintiff's father, Michael Foster
(“Mr. Foster”), from whom Plaintiff inherited his
interest in the real property at issue in this action. Dkt.
No. 1, Ex. A. EquityKey moves to dismiss all of
Plaintiff's claims on the grounds that they are
time-barred and fail to state a claim upon which relief may
be granted. Dkt. No. 8. For the reasons explained below, the
court grants the motion to dismiss.
alleges the following facts. In 2010, Mr. Foster, then in his
early seventies and “still competent, ” was
living alone at his residence at 28 Pennsylvania Avenue, Los
Gatos, CA (“the property”). Dkt. No. 1, Ex. A.,
¶ 12. Prior to 2010, a fallen tree had damaged Mr.
Foster's beloved car, and he sought funds to restore the
Foster entered into a contract with EquityKey in June 2010.
Id., ¶ 13. The contract states that EquityKey
will pay Mr. Foster a $196, 000 “option payment”
in exchange for Mr. Foster granting EquityKey the right to
participate in 100% of the appreciation of his property, if
any, for up to fifty years from the date of the agreement.
Id., ¶ 14. The contract is secured by a
Performance Deed of Trust and confirmed in a Memorandum of
Option (the latter dated March 20, 2012). Id. Both
the contract and the Memorandum of Option state that the
arrangement is an option payment and “not a
loan.” Id. Plaintiff asserts that Mr. Foster
entered into this contract based on “false and
deliberately misleading” representations by EquityKey,
which Mr. Foster reasonably believed “given his age and
mental status, ” that the transaction was an option
contract rather than, as Plaintiff claims, a “disguised
. . . high cost mortgage.” Id., ¶ 19-21.
Given that EquityKey's intentionally deceptive efforts
prevented Mr. Foster from understanding the true nature of
the transaction, Plaintiff alleges, there was no meeting of
the minds and no valid contract was formed. Id.,
Foster passed away in 2016, and Plaintiff became the executor
of his estate and the Trustee of the Michael P. Foster Trust.
Id., ¶ 15. Prior to his passing, Mr. Foster had
told Plaintiff that he “had made a deal for essentially
‘free money' and believed that he could not be
forced from the home at any time or for any reason.”
Id., ¶ 16. Only after his father's death,
when Plaintiff was going through his late father's
records, did he discover the EquityKey arrangement.
Id., ¶ 15. Plaintiff alleges that “[d]ue
to Michael Foster's age and the complexity of the
contract, as well as EquityKey's deliberate effort to
hide the nature of the transaction, . . . it was not possible
for Michael Foster to understand and/or discover the true
nature of the agreement with EquityKey . . . .”
Id., ¶ 16. Plaintiff asserts that he himself
only realized the “exact nature and terms” of the
EquityKey agreement with the assistance of counsel.
Id. If Plaintiff were to have sold the property at
the time of the filing of the complaint, the amount due to
EquityKey would have been approximately $705, 000.00.
Id., ¶ 17.
filed his complaint in Santa Clara Superior Court in November
2016. Dkt. No. 1, Ex. A. The complaint asserts that the
contract is actually a high-interest loan secured by the
property that was issued without the required disclosures or
counseling and that EquityKey fraudulently concealed the
nature of the agreement. Id., ¶¶ 1-2. The
complaint alleges claims for (1) Rescission for Fraud, (2)
Declaratory Relief, (3) Elder Financial Abuse (Cal. Welf.
& Inst. Code § 15610.30), (4) Cancellation of
Instruments (Cal. Civ. Code § 3412), (5) Quiet Title,
(6) Violations of the Truth in Lending Act
(“TILA”) (15 U.S.C. § 1601, et
seq.), and (7) Unfair Business Practices (Cal. Bus.
& Prof. Code § 17200, et seq.). Dkt. No. 1,
contract itself, which Plaintiff attached to the complaint,
is titled “Property Appreciation Option
Agreement.” Dkt. No. 7. It states that EquityKey will
pay Mr. Foster an “Option Premium” of $196, 000
to purchase the option to participate, at a rate of 100%, in
the appreciation of the property, if any, from its initial
value of $1, 200, 000. Id. at pg. 1; pg. 2, ¶
1. The grant of the option does not give EquityKey “any
present ownership or possession rights with respect to the
Property.” Id., ¶ 2. EquityKey's
right to exercise its option only comes into play if (1) it
is informed of a pending sale of the property “or a
transfer, conveyance, assignment or other loss of 
ownership, ” (2) if Mr. Foster breaches the agreement,
or (3) if neither of the prior events occurs within the
50-year term of the agreement, EquityKey may call or exercise
its option within 90 days of the end of the term.
Id. At such time, EquityKey may, but need not,
exercise its option. If EquityKey decides not to exercise its
option, the agreement terminates. Id., ¶ 3. If
EquityKey exercises the option at some point during the
50-year option period, Mr. Foster must pay it 100% of the
appreciation of the property, which will be calculated by
multiplying the percentage change in the S&P/Case-Shiller
Home Price Index (for the Metropolitan Statistical Area in
which the Property is located) since the date of the
agreement by the initial property value. Id., ¶
5. An Early Termination Charge-equal to the greater of (1)
the Option Premium ($196, 000) plus 3% of the initial
property value plus 12% annual interest,  or (2) the amount
of appreciation of the property at the time of the
breach-applies if Mr. Foster (or his heirs) sells or
otherwise transfers the property within 10 years of the date
of the agreement. Id., ¶ 11. The contract
further states that Mr. Foster agrees to execute a
Performance Deed of Trust and Memorandum of Option.
Id., ¶ 14. Finally, the agreement states that
Mr. Foster “understand[s], acknowledge[s] and agree[s]
that it is binding upon his estate, heirs, successors, and
beneficiaries. Id., ¶ 22.
noted in the Plaintiff's complaint, the agreement states
that it is “[n]ot a Loan or Security, ” and is
instead “an option in real property.”
Id., at ¶ 26. The contract also warns that
EquityKey's option “may result in you [(meaning Mr.
Foster)] (including your heirs, estate, beneficiaries and
legal representatives) receiving less from your Property in a
sale or other Property Transfer than if you did not enter
into this Agreement. We recommend you thoroughly discuss this
transaction with your heirs and beneficiaries, as well as
your legal, tax and financial advisors to make certain you,
and those who may be affected by this transaction, understand
and are comfortable being bound by this Agreement.”
Id., ¶ 4. A similar warning, advising Mr.
Foster not to sign unless he has read the entire agreement
and encouraging him to seek legal counsel and financial
advice before signing, is included in capital letters above
the signature line. Id., ¶ 31.
EquityKey removed this action to federal court in January
2017, Dkt. No. 1, and filed a motion to dismiss one week
later, Dkt. No. 14. In its motion, EquityKey argues that all
of Plaintiff's claims, each of which EquityKey asserts is
founded on a claim of fraud, are time-barred, and that the
complaint fails to state a claim upon which relief may be
granted because the contract is not a loan as a matter of
law. Dkt. No. 8. Plaintiff responds that the statute of
limitations has not run on its claims, that the discovery
rule or the doctrine of equitable tolling should apply, and
that the true nature of the transaction reveals that it is a
loan and not an option contract. Dkt. No. 14.
parties have consented to magistrate judge jurisdiction. Dkt.
Nos. 10, 11.
survive a motion to dismiss, a complaint must allege
sufficient facts to state a claim for relief that is facially
plausible. Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007). “A claim has facial plausibility when
the plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). Complaints that merely
recite the elements of a cause of action are insufficient.
Id. In considering a motion to dismiss, a court
accepts all of the plaintiff's factual allegations as
true and construes the pleadings in the light most favorable
to the plaintiff. Manzarek v. St. Paul Fire & Marine
Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). But
“the court is not required to accept legal conclusions
cast in the form of factual allegations if those conclusions
cannot reasonably be drawn from the facts alleged.”
Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55
(9th Cir. 1994). Dismissal may also be based on the absence
of a cognizable legal theory. Balistreri v. Pacifica
Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).
court begins its discussion with an analysis of the federal
enacted TILA to promote ‘the informed use of
credit' by consumers.” Davenport v. Litton Loan
Servicing, LP, 725 F.Supp.3d 862, 872 (N.D. Cal. 2010)
(quoting 15 U.S.C. § 1601(a)). Thus, the Act seeks to
“assure a meaningful disclosure of credit terms”
to aid consumers in making informed decisions and protect
them from unfair credit practices. Beach v. Ocwen Fed.
Bank, 523 U.S. 410, 412 (1998) (quoting 15 U.S.C. §
1601(a)). TILA defines “credit” as “the
right granted by a creditor to a debtor to defer payment of
debt or to incur debt and defer its payment.” 15 U.S.C.
§ 1602(f); see also 12 C.F.R. § 226.2(14).
A “creditor” ...