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Patino v. Franklin Credit Management Corp.

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

May 25, 2017

PENNY L. PATINO, Plaintiff,


          LAUREL BEELER United States Magistrate Judge.


         In this mortgage-foreclosure case, Penny Patino (the borrower) alleges that Cal State 9 Credit Union (the lender) improperly refused to accept her notice of rescission under the Truth in Lending Act (“TILA”).[1] Over nine years later, she brought this case against Bosco Credit (Cal State 9's assignee), Franklin Credit Management (the deed-of-trust beneficiary), and The Wolf Firm (the trustee).[2] In her Second Amended Complaint, Ms. Patino asserts a claim for damages under TILA and, using that as a federal-jurisdiction hook, asserts five state-law claims against Bosco and Franklin. Those two defendants now move to dismiss the case under Rule 12(b)(6) because, they say, the statute of limitations bars her claims.

         The court held a hearing on the motion on May 25, 2017. The court grants the motion and dismisses with prejudice Ms. Patino's TILA claim because it is untimely. The court declines to exercise supplemental jurisdiction over her state-law claims and dismisses them without prejudice.


         Ms. Patino obtained a $155, 571.67 home-equity credit line from Cal State 9 Credit Union on July 14, 2006.[3] She executed a promissory note and a deed of trust, and Cal State 9 provided a “Notice of Right of Rescission” informing her of her right to rescind, or cancel, the loan.[4] The notice said that she could do so within three business days by sending Cal State 9 a written statement declaring her intention to cancel.[5]

         “At this time in her life, [Ms.] Patino's cognitive abilities to fully understand and comprehend the significance of her financial decisions were extremely limited.”[6] After suffering “an unbroken series of mentally and physically abusive relationships, ” Ms. Patino was diagnosed with post-traumatic stress disorder and battered-woman syndrome.[7] In 2006, when she got the loan, she suffered “severe anxiety and depression” and did “not understand[] [or] realiz[e] the extent of the financial obligation.”[8]

         Nevertheless, on July 18 Ms. Patino “attempted to rescind the loan transaction.”[9] She faxed a handwritten note saying “I wish to cancel, ” and hand-delivered a second letter stating “Today I cancelled totally.”[10] She then sent Cal State 9 a check for $155, 571.67, the full loan balance.[11] But Cal State 9 “refused to accept [her] check[] and refused to allow [her] to cancel the loan.”[12] Ms. Patino instead received “her check back with an ‘X' and the word ‘void' written on [it], ” which she alleges Cal State 9 wrote in attempt “to disregard [her] rescission and cancellation of the loan.”[13] Ms. Patino alleges that her “post[-]traumatic stress disorder prevented [her] from fully understanding this sequence of events, and from fully understanding that no rescission had taken place.”[14] She continued to make payments.[15]

         In 2008, Cal State 9 assigned its interest in Ms. Patino's loan to Bosco Credit.[16] Seven years later, The Wolf Firm (the deed-of-trust trustee) sent Ms. Patino a demand letter “stating that she was in default on her obligations under the promissory note and deed of trust in the amount of $77, 177.57.”[17] The Wolf Firm “threaten[ed] that if payment was not received in 30 days, then the entire sum of both principal and interest [would] become due, on penalty of the power of sale in the deed of trust.”[18] Over the next several months, the firm took action on Ms. Patino's default: first, it recorded a Notice of Default, “stating that the amount to re-instate the loan was $79, 612.89”; then a Notice of Trustee's Sale, “stating that the amount of unpaid balance and other charges was $248, 329.46.”[19]

         Ms. Patino then sued in May 2016.[20] After the court dismissed her original complaint with leave to amend, the court appointed counsel for Ms. Patino.[21] The court subsequently dismissed her First Amended Complaint, again with leave to amend her TILA claim, and (after allowing the defendants to respond) granted her request for a temporary restraining order.[22] In her Second Amended Complaint (“SAC”), Ms. Patino asserts seven claims: (1) violation of TILA; (2) wrongful foreclosure; (3) unfair business practices under California Business & Professions Code § 17200; (4) breach of contract; (5) intentional infliction of emotional distress; (6) negligent infliction of emotional distress; and (7) quiet title. She requests damages, declaratory relief, and an injunction.[23] The defendants move to dismiss the SAC because (among other things) they say her claims are barred by the statute of limitations.[24]

         RULE 12(B)(6) LEGAL STANDARD

         Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of a “failure to state a claim upon which relief can be granted.” A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Johnson v. Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th Cir. 2008); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001).

         A complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief” to give the defendant “fair notice” of what the claims are and the grounds upon which they rest. See Fed. R. Civ. P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint does not need detailed factual allegations, but “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. Factual allegations must be enough to raise a claim for relief above the speculative level . . . .” Twombly, 550 U.S. at 555 (internal citations omitted).

         To survive a motion to dismiss, a complaint must contain sufficient factual allegations, 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 Twombly, 550 U.S. at 570). “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.” Id. “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556). “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.''” Id. (quoting Twombly, 550 U.S. at 557).

         If a court dismisses a complaint, it should give leave to amend unless the “the pleading could not possibly be cured by the allegation of other facts.” Cook, Perkiss and Liehe, Inc. v. Northern California Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990).


         1. The Statute of Limitations Bars Ms. Patino's TILA Claim

         Ms. Patino seeks damages under TILA because Cal State 9 did not honor her rescission notice.[25] The issue is whether Ms. Patino filed her TILA claim too late or whether it eludes the Act's time bar under 15 U.S.C. § 1640(e)'s “recoupment exception.” “Congress passed [TILA] to help consumers ‘avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing.'” Jesinoski v. Countrywide Home Loans, Inc., 135 S.Ct. 790, 791-92 (2015) (quoting 15 U.S.C. § 1601(a)). To that end, TILA affords borrowers time-limited rights to rescission and monetary relief for creditors' violations of its provisions. See 15 U.S.C. § 1635 (rescission); id. § 1640 (damages).

         A borrower may rescind a loan under TILA within three business days “following the consummation of the transaction or the delivery of [TILA-required disclosures], whichever is later, by notifying the creditor . . . of his intention to do so.” 15 U.S.C. § 1635(a); Jesinoski, 135 S.Ct. at 792. If the lender never provides the required disclosures, the borrower's right of rescission expires after three years. 15 U.S.C. § 1635(f); Jesinoski, 135 S.Ct. at 792. To exercise the right, the borrower need only give timely notice. Jesinoski, 135 S.Ct. at 792.

         TILA imposes certain obligations on creditors when a borrower gives notice of rescission. See 15 U.S.C. § 1635(b). For example, within twenty days after receiving a notice of rescission, a creditor must return to the borrower any money or property received and must “take any action necessary or appropriate to reflect the termination of any security interest.” Id. A creditor's failure to honor a timely rescission request is an actionable TILA violation. See Mitchell v. Bank of Am., No. 10cv432 L(WVG), 2011 WL 711579, at *4 (S.D. Cal. Jan. 31, 2011) (“Failure to respond to plaintiffs' notice of rescission is a separate violation which provides a basis for statutory damages under [TILA].”); Buick v. World Savings Bank, 637 F.Supp.2d 765, 771-72 (E.D. Cal. 2008). So, a creditor that breaches these obligations may be liable for damages. See 15 U.S.C. § 1635(g) (where “a creditor has violated this section, in addition to rescission the court may award relief under section 1640”); id. § 1640 (damages for TILA violations).

         The statute of limitations on TILA-damages claims is generally one year from the date of the violation. 15 U.S.C. § 1640(e). Thus, “[a] claim for damages based on violations of TILA's rescission provision” - i.e. where a creditor fails to honor a rescission request - “must be brought within one year” of such failure. Cook v. Wells Fargo Bank, No. 09cv2757 WQH (NLS), 2010 WL 1289892, at *3 (S.D. Cal. Mar. 26, 2010). But “the doctrine of equitable tolling may, in the appropriate circumstances, suspend the limitations period until the borrower discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the basis of the TILA [damages] action.” King v. California, 784 F.2d 910, 915 (9th Cir. 1986). Such tolling is available only if “despite all due diligence, a plaintiff is unable to obtain vital information bearing on the existence of his claim.” Santa Maria v. Pac. Bell, 202 F.3d 1170, 1178 (9th Cir. 2000), overruled on other grounds by Socop-Gonzalez v. INS, 272 F.3d 1176 (9th Cir. 2001).

         In addition to equitable tolling, a TILA-damages claim may avoid the one-year limitations period if it falls within § 1640(e)'s recoupment exception. That section provides that TILA's one-year period will not bar a recoupment claim asserted defensively in “an action to collect a debt”:

This subsection does not bar a person from asserting a violation of this subchapter in an action to collect the debt which was brought more than one year from the date of the occurrence of the violation as a matter of defense by recoupment or ...

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