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Palmer v. MTC Financial Inc.

United States District Court, E.D. California

May 26, 2017

RANDY D. PALMER and YOLANDA M. PALMER, Plaintiffs,
v.
MTC FINANCIAL, INC., d/b/a TRUSTEE CORPS; THE BANK OF NEW YORK MELLON TRUST COMPANY N.A., as trustee for certificate holders of the Cwabs Inc., asset-backed certificates, series 2005-14; DITECH FINANCIAL, LLC, and DOES 1 through 10, inclusive, Defendants.

          ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS (DOC. NOS. 13, 16)

         I. Introduction

         After the foreclosure proceedings involving their residence in Fresno, California, plaintiffs Randy D. Palmer and Yolanda M. Palmer filed this action on January 10, 2017 against defendants MTC Financial, Inc. (“MTC Financial”), the Bank of New York Mellon Trust Company, N.A. (“BNY”), and Ditech Financial, LLC (“Ditech”). (Doc. No. 1.) In their complaint, plaintiffs present the following ten causes of action: (1) violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq., against BNY and Ditech; (2) violation of the Truth in Lending Act, 15 U.S.C. § 1641, against BNY; (3) violation of California's Rosenthal Act, Civil Code § 1788.1, against BNY and Ditech; (4) violation of California's Business and Professions Code § 17200, et seq., against all defendants; (5) cancellation of instrument against all defendants; (6) violation of the Fair Credit Reporting Act, 15 U.S.C. § 1681s-2(b), against BNY and Ditech; (7) negligence against BNY and Ditech; (8) slander of title against all defendants; (9) quiet title against all defendants; and (10) wrongful foreclosure against all defendants. (Id. at 16-36.)

         On February 14, 2017, defendants BNY and Ditech filed a motion to dismiss pursuant to Federal Rule of Civil Procedure (“Rule”) 12(b)(6). (Doc. No. 13.) On February 16, 2017, defendant MTC Financial filed a motion to dismiss also pursuant to Rule 12(b)(6). (Doc. No. 16.) On March 21, 2017, plaintiffs filed oppositions to the motions to dismiss and on March 28, 2017, defendants filed their replies. (Doc. Nos. 23, 24, 30, 31.)[1] The motions came before the court for hearing on April 4, 2017. Attorney Andrew Stilwell appeared telephonically on behalf of plaintiffs, attorney Martin Kosla appeared telephonically on behalf of defendant MTC Financial, and attorney Simon Feng appeared telephonically on behalf of defendants BNY and Ditech. (Doc. No. 34.) For the reasons set forth below, defendant's motion to dismiss will be granted and plaintiffs' complaint will be dismissed with leave to amend.

         I. Requests For Judicial Notice

         The court will first address the requests for judicial notice relating to the pending motions to dismiss. Defendants BNY and Ditech request that the court judicially notice the following five documents: (1) an Assignment of Dead of Trust recorded on October 7, 2011 (Exh. 1); (2) a Substitution of Trustee recorded on March 25, 2015 (Exh. 2); (3) a Notice of Trustee's Sale recorded on December 4, 2015 (Exh. 3); (4) a Trustee's Deed Upon Sale recorded on December 29, 2016 (Exh. 4); and (5) a printout from the United States Patent and Trademark Office webpage (Exh. 5). (Doc. No. 14.) Defendant MTC Financial requests that the court judicially notice four of the same documents defendants BNY and Ditech seek judicial notice of (Exhs. 1-4), and, in addition, request judicial notice of the following documents: (1) the Deed of Trust recorded on July 20, 2005 (Exh. A); (2) the Notice of Default and Election to Sell Under Deed of Trust recorded on October 27, 2011 (Exh. C); (3) the Notice of Default and Election to Sell Under a Deed of Trust recorded on March 25, 2015 (Exh. E). (Doc. No. 18.) Plaintiff has objected to both requests for judicial notice filed by defendants on the grounds that while the existence of the documents in the public record may be the proper subject of judicial notice, the truth of the statements contained in those documents is not. (Doc. Nos. 25 and 26.)

         Defendants' requests for judicial notice will be granted pursuant to Federal Rule of Evidence 201. However, in granting those requests the court merely takes notice of the existence of these documents, but not for the disputed facts contained therein. See Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001); MGIC Indem .Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986).

         Plaintiffs ask that judicial notice be taken of several documents as well. First, plaintiffs seek judicial notice of the same Notice of Trustee's Sale recorded on December 4, 2015 that the court has already judicially noticed. (Doc. No. 27 at 6-8.) The court therefore grants this request. Second, plaintiffs seek judicial notice of only the first page of the two page Trustee's Deed Upon Sale recorded on December 29, 2016 that the court has already judicially noticed, followed by a single page for an Assignment of Deed of Trust for un unrelated property in Pismo Beach, California. (Doc. No. 27 at 10-11.) Plaintiffs also seek judicial notice of an Assignment of Deed of Trust for an unrelated property in Orange County, California. (Id. at 13-14.) The court will deny these requests as either unnecessary in light of the granting of defendants' request for judicial notice or as not pertaining to documents relevant to resolution of the pending motion to dismiss.

         Finally, plaintiffs seek judicial notice of the Bill Analysis for the Assembly Committee on Bank and Finance hearing held on January 12, 1998 regarding Assembly Bill 1203 (Kukendall), as amended January 7, 1998. (Doc. No. 27 at 16-17.) Plaintiffs state that this Assembly Bill became California Business and Professions Code § 10234, which they claim prohibits residential table-funding. (Doc. No. 1 at 7-8.) The court grants this request that judicial notice be taken of the legislative materials from Assembly Bill 1203, as these are “matters of public record” that may properly be judicially noticed by the court. Northstar Fin. Advisors Inc. v. Schwab Investments, 779 F.3d 1036, 1042 (9th Cir. 2015); see also Stone v. Sysco Corp., No. 1:16-cv-01145-DAD-JLT, 2016 WL 6582598, at *3 (E.D. Cal. Nov. 7, 2016) (taking judicial notice of legislative materials).

         II. Background

         On or about July 2005, plaintiffs obtained a mortgage loan on a property located at 8315 North Thyme Way, Fresno, CA 93720 in the amount of $520, 000. (Doc. No. 18 at 6-7.) The mortgage was secured by a deed of trust listing America's Wholesale Lender as the lender, Recon Trust Company, N.A. as the trustee, and the Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary and nominee for the lender. (Id. at 6-22.) On October 7, 2011, MERS assigned the deed of trust to defendant BNY, as trustee for the certificateholders of the CWABS Inc., asset-backed certificates, series 2005-14. (Id. at 24-25.) On March 16, 2015, defendant BNY substituted defendant MTC Financial, d/b/a Trustee Corps, as trustee under the deed of trust. (Id. at 32.) On December 28, 2016, after two notices of default and election to sell were recorded, defendant MTC Financial foreclosed on the property located at 8315 North Thyme Way with defendant BNY purchasing it. (Id. at 42-43.)

         Plaintiffs now claim the foreclosure sale of their home was wrongful and void because the original deed of trust was invalid and the product of an illegal table-funded loan whereby America's Wholesale Lender was not the actual lender, but instead acted as a broker to bring in anonymous outside funding from a third party. (Doc. No. 1 at 5.) Plaintiffs also allege in their complaint that the assignments were void because MERS did not have the power outside of its capacity as nominee to assign the note. (Id. at 10.) Finally, plaintiffs allege that defendant BNY failed to disclose the assignments. (Id. at 11.)

         III. Legal Standard

         The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test the legal sufficiency of the complaint. N. Star Int'l v. Ariz. Corp. Comm'n, 720 F.2d 578, 581 (9th Cir. 1983). “Dismissal can be based on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A plaintiff is required to allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. 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).

         In determining whether a complaint states a claim on which relief may be granted, the court accepts as true the allegations in the complaint and construes the allegations in the light most favorable to the plaintiff. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1989). In ruling on a motion to dismiss brought pursuant to Rule 12(b)(6), the court is permitted to consider material which is properly submitted as part of the complaint, documents that are not physically attached to the complaint if their authenticity is not contested and the plaintiffs' complaint necessarily relies on them, and matters of public record. Lee, 250 F.3d at 688-89.

         IV. Analysis

         1. California Civil Code §§ 47, 2924(D) Privilege

         Defendant MTC Financial moves to dismiss the claims brought by plaintiffs against it on the ground that its conduct as a foreclosure trustee is privileged under California Civil Code §§ 47, 2924(D). (Doc. No. 17 at 12-14.) Plaintiffs oppose on the grounds that a void deed of trust negates defendant MTC Financial's status as trustee and negates the power to sell. (Doc. No. 24 at 6.)

         California Civil Code § 2924(a) states in pertinent part:

Where . . . in any transfer in trust made after July 27, 1917, of a like estate to secure the performance of an obligation, a power of sale is conferred upon the mortgagee, trustee, or any other person, to be exercised after a breach of the obligation for which that mortgage or transfer is a security, the power shall not be exercised . . . until all of the following apply:
(1) The trustee, mortgagee, or beneficiary, or any of their authorized agents shall first file for the record . . . a notice of default. . . .
(3) . . . [A]fter the lapse of the three months described in paragraph (2), the mortgagee, trustee, or other person authorized to take the sale shall give notice of sale, stating the time and place thereof. . . .

         Subsection (d) of that statute further provides that “[t]he mailing, publication, and delivery of notices as required by this section” and the “[p]erformance of the procedures set forth in this article” are considered “privileged communications pursuant to [Cal. Civ. Code § 47].” The broad privilege conferred by California Civil Code § 47 bars liability for “all torts except malicious prosecution, ” and is “absolute in nature.” Silberg v. Anderson, 50 Cal.3d 205, 212, 215 (1990); see also Simmons First National Bank v. Lehman, Case No. 13-cv-02876-DMR, 2015 WL 1503437, at *5 (N.D. Cal. Apr. 1, 2015) (slander of title claim precluded by § 47); Narog v. New York Community Bank, No. CIV S-10-3265 JAM CKD PS, 2011 WL 4591219, at * 2 (E.D. Cal. Sept. 30, 2011) (“Plaintiff's claims of negligence against MTC are therefore barred by [§ 47's] privilege applied to foreclosure trustees in performance of foreclosure procedures under the statute.”).

         On March 16, 2015, defendant BNY substituted defendant MTC Financial, d/b/a Trustee Corps, as trustee under the deed of trust. (Doc. No. 18 at 32.) MTC Financial then issued a notice of default and election to sell, a notice of trustee's sale, and finally foreclosed on plaintiffs' home. (Id. at 34-43.) In their complaint plaintiffs allege that

DITECH, with full knowledge of the rules restricting transfers to REMIC trusts after their closing date, did record the NOD with full knowledge that the BNY Trust did not have rights under the void DOT to grant DITECH, MTC and their predecessors-in-interest, the authority to execute and record the NOD. The recording was therefore done by DITECH and MTC and their predecessors-in-interest without any reasonable belief that it was valid, and is therefore not subject to any privilege under Civil Code section 47.

(Doc. No. 1 at 33.) Plaintiffs, however, have failed to plead any facts supporting the suggestion that defendant MTC did not have a reasonable belief that the recording was valid. Likewise, the complaint alleges that “BNY TRUST and MTC have taken these actions with full knowledge of their unauthorized capacity, did these action knowingly, willfully, and with intent to oppress Plaintiffs with malice.” (Id. at 37.) Again, however, plaintiffs have failed to plead any facts that support the suggestion that MTC acted with knowledge of its alleged unauthorized capacity or that it proceeded with malice. Accordingly, pursuant to §§ 47 and 2924(d), defendant MTC Financial's actions as a foreclosure trustee were absolutely privileged.

         Accordingly, plaintiffs' claims against MTC Financial will be dismissed with leave to amend.

         2. Wrongful Foreclosure

         Defendants BNY and Ditech move to dismiss the wrongful foreclosure claim brought against them on the grounds that the deed of trust, the assignment of the deed of trust, and the notice of default in question are not void. (Doc. No. 13 at 21.) Defendants specifically argue that the deed of trust is not void because, contrary to plaintiffs' theory of the case, America's Wholesale Lender was the actual lender on plaintiffs' loan, the deed of trust specifically lists America's Wholesale Lender as the lender on the loan, and America's Wholesale Lender is a subsidiary of Countrywide. (Doc. No. 13 at 11.)

         In opposing these arguments, plaintiffs assert that the deed of trust is void because it is the product of illegal residential table-funding. (Doc. No. 23 at 7, 9-10.) In this regard, plaintiffs argue the loan was table-funded because that the dead of trust lists America's Wholesale Lender as the lender on the loan when it actually was not. (Id. at 8-9.) Finally, plaintiffs cite the bill analysis to AB 1203 in support of their argument that California Business and Professions Code § 10234 protects against encumbering residential property with table-funded loans. (Id. at 8.) The bill analysis that plaintiffs cite, however, is explicit in stating that “there are no consumer implications to this proposal as it addresses commercial table funding only.” (Doc. No. 27 at 17.)

         Rather, plaintiffs' table-funding theory appears to be based The Real Estate Settlement Procedures Act (“RESPA”), which shields home buyers “from unnecessarily high settlement charges by certain abusive practices.” 12 U.S.C. § 2601(a). Table funding, when it includes a kickback from the “true lender” to the ostensible lender, is prohibited by RESPA. The Ninth Circuit has explained:

“Table-funding” is defined as a “settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds.” See, e.g., 24 C.F.R. ยง 3500.2. In a table-funded loan, the originator closes the loan in its own name, but is acting as an intermediary for the true lender, which assumes the financial risk of the transaction. The timing of the assignment is therefore sometimes pivotal in determining ...

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