United States District Court, N.D. California, San Francisco Division
PENNY L. PATINO, Plaintiff,
FRANKLIN CREDIT MANAGEMENT CORPORATION, et al., Defendants.
ORDER GRANTING THE DEFENDANTS' MOTION TO DISMISS
RE: ECF NO. 75
BEELER United States Magistrate Judge.
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”). 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). 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
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.
Patino obtained a $155, 571.67 home-equity credit line from
Cal State 9 Credit Union on July 14, 2006. 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. The notice said
that she could do so within three business days by sending
Cal State 9 a written statement declaring her intention to
this time in her life, [Ms.] Patino's cognitive abilities
to fully understand and comprehend the significance of her
financial decisions were extremely
limited.” After suffering “an unbroken series
of mentally and physically abusive relationships, ” Ms.
Patino was diagnosed with post-traumatic stress disorder and
battered-woman syndrome. In 2006, when she got the loan, she
suffered “severe anxiety and depression” and did
“not understand [or] realiz[e] the extent of the
on July 18 Ms. Patino “attempted to rescind the loan
transaction.” She faxed a handwritten note saying
“I wish to cancel, ” and hand-delivered a second
letter stating “Today I cancelled
totally.” She then sent Cal State 9 a check for
$155, 571.67, the full loan balance. But Cal State 9
“refused to accept [her] check and refused to allow
[her] to cancel the loan.” 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.” 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.” She continued to make
2008, Cal State 9 assigned its interest in Ms. Patino's
loan to Bosco Credit. 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.” 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.” 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,
Patino then sued in May 2016. After the court dismissed her
original complaint with leave to amend, the court appointed
counsel for Ms. Patino. 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. 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. The defendants move to dismiss the SAC
because (among other things) they say her claims are barred
by the statute of limitations.
12(B)(6) LEGAL STANDARD
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).
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).
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).
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).
The Statute of Limitations Bars Ms. Patino's TILA
Patino seeks damages under TILA because Cal State 9 did not
honor her rescission notice. 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).
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.
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
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).
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
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 ...