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Ruvalcaba v. Ocwen Loan Servicing, LLC

United States District Court, S.D. California

July 13, 2017

CAMILA S. RUVALCABA, Plaintiff,
v.
OCWEN LOAN SERVICING, LLC, et al., Defendants.

          ORDER: (1) GRANTING EQUITY TITLE COMPANY'S MOTION TO DISMISS; AND (2) DENYING EQUITY TITLE COMPANY'S MOTION TO STRIKE [ECF No. 107]

          Hon. Cynthia Bashant United States District Judge

         Plaintiff Camila Ruvalcaba filed her Third Amended Complaint (“TAC”) alleging one count of negligence against Equity Title Company. (ECF No. 99.) In response, Equity Title filed a Motion to Dismiss and a Motion to Strike. (ECF No. 107.) Plaintiff opposes both motions. (ECF No. 115.)

         The Court finds Equity Title's motions suitable for determination on the papers submitted and without oral argument. See Fed. R. Civ. P. 78(b); Civ. L.R. 7.1(d)(1). For the following reasons, the Court GRANTS Equity Title's Motion to Dismiss and DENIES its Motion to Strike.

         I. BACKGROUND[1]

         Plaintiff entered into a mortgage loan with Ocwen Loan Servicing, LLC (“Ocwen”). (TAC ¶ 37.) In August 2013, Plaintiff decided to refinance the Ocwen loan with Prospect Mortgage, LLC (“Prospect”). (Id. ¶ 44.) People's Escrow Inc., an escrow company, and Equity Title, a title company, assisted with the refinance. (Id. ¶ 53.) People's Escrow's role was to ensure Prospect sent Equity Title the proper payoff amount and, in turn, Equity Title sent the proper payoff amount to Ocwen. (Id.) As for Equity Title, it was responsible for ensuring that: “(1) Ocwen would release and discharge [its] Deed of Trust for the Property; (2) a Deed of Trust would be recorded for the Property on behalf of Prospect; and (3) therefore, Prospect would then have a first position lien on the Property following Plaintiff's Refinance.” (Id. ¶ 92.)

         On November 21, 2013, Prospect sent Lender's Closing Instructions to Equity Title.[2] (TAC ¶ 91.) The Lender's Closing Instructions state: “You Are Not Authorized to Close this Loan if . . . You have not verified within forty-eight (48) hours prior to closing, the payoff amount . . . .” (Id. ¶ 93.) Around four days later, Equity Title sent Prospect a Closing Protection Letter.[3] (Id. ¶ 89.) The Closing Protection Letter states that Equity Title will reimburse Prospect for actual losses incurred due to Equity Title's failure to comply with the Lender's Closing Instructions. (Id.)

         On November 27, 2013, escrow closed and Prospect wired $284, 247.23 to Equity Title for Ocwen's payoff (“Payoff Funds”) and $1, 420.00 to Equity Title for its insurance services. (TAC ¶ 97.) The Payoff Funds were about $4, 000.00 less than the amount listed on the final payoff quote that Ocwen sent to Prospect on November 22, 2013. (Id. ¶ 83.) Escrow did not receive the final payoff quote. (Id. ¶ 85.) Thus, the Payoff Funds instead reflected a payoff quote that Ocwen sent to Prospect on November 20, 2013, which Escrow did receive. (Id. ¶¶ 81-82.)

         On December 2, 2013, Equity Title wired the Payoff Funds to Ocwen. (TAC ¶ 112.) Equity Title also recorded a grant deed for Plaintiffs interest and a deed of trust in favor of Prospect. (Id. ¶ 105.) But as a result of receiving an incorrect payoff amount, Ocwen allegedly never executed a release and discharge of its prior deed of trust. (Id. ¶ 96.) Consequently, Prospect did not hold a valid first lien on the property. (Id. ¶ 143.) Meanwhile, Plaintiff started making mortgage payments to Prospect instead of Ocwen because she believed the Ocwen loan was paid off. (Id. ¶ 146.) A dispute then arose, leading to Ocwen sending “debt collection communications to Plaintiff ranging from delinquency notices to foreclosure threats” and reporting “outstanding delinquencies concerning the disputed alleged debt on Plaintiffs credit reports, which led to Plaintiff suffering severe emotional distress.” (Id. ¶ 147.)

         Based on these actions, Plaintiff alleges Equity Title “purposely or negligently failed to verify the proper payoff amount to Ocwen within forty-eight (48) hours prior to closing, which was noncompliant with Prospect's Closing Instructions.” (TAC ¶ 95.) Additionally, the Lender's Closing Instructions required Equity Title to send a Lender's Title Policy to Prospect by December 27, 2013. (Id. ¶ 133.) Plaintiff alleges a drafted Lender's Title Policy would have revealed to Equity Title that Ocwen never released and discharged its deed of trust. (Id.) Accordingly, Plaintiff alleges Equity Title failed to take any remedial action to fix the deficiency in the payoff amount. (Id. ¶ 135.)

         II. LEGAL STANDARD

         A motion to dismiss pursuant to 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed.R.Civ.P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). The court must accept all factual allegations pleaded in the complaint as true and must construe them and draw all reasonable inferences from them in favor of the non-moving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations; rather, it must plead “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) (citing 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).

         “[A] plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (alteration in original) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)). A court need not accept “legal conclusions” as true. Iqbal, 556 U.S. at 678. Despite the deference the court must pay to the plaintiff's allegations, it is not proper for the court to assume that “the [plaintiff] can prove facts that it has not alleged or that the defendants have violated the . . . law[] in ways that have not been alleged.” Assoc. Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).

         As a general rule, a court freely grants leave to amend a complaint that has been dismissed. Fed.R.Civ.P. 15(a); Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986). However, leave to amend may be denied when “the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.” Schreiber, 806 F.2d at 1401 (citing Bonanno v. Thomas, 309 F.2d 320, 322 (9th Cir. 1962)).

         III. DISCUSSION

         Equity Title raises three arguments to dismiss Plaintiff's negligence claim: (1) Equity Title does not owe a duty of care to Plaintiff; (2) Equity Title's actions do not constitute a breach of duty; and (3) Plaintiff's claim is time-barred. (ECF No. 107.) The Court agrees with reasons one and three.[4] First, Plaintiff's factual allegations do not establish that Equity Title owed a duty to Plaintiff. Second, from the face of her pleading, Plaintiff's claim is time-barred.

         A. Duty of Care

         In order to state a claim for negligence, Plaintiff must allege that: (1) Equity Title owed her a duty to exercise due care; (2) the company breached that duty; (3) causation; and (4) damages. See Merrill v. Navegar, Inc., 26 Cal.4th 465, 477 (2001). The Court will first analyze whether Equity Title owed a duty of care to Plaintiff under the liability standards for escrow companies. The Court then addresses two competing theories Plaintiff raises in her Opposition for establishing Equity Title owed her a duty.

         1.Duty of an Escrow Company

         “An escrow holder is an agent and fiduciary of the parties to the escrow.” Summit Fin. Holdings, Ltd. v. Cont'l Lawyers Title Co., 27 Cal.4th 705, 711 (2002). Its “obligations are limited to compliance with the parties' instructions.” Id. The escrow holder is generally not liable for a “failure to do something not required by the terms of the escrow or for a loss incurred while obediently following [its] escrow instructions.” Axley v. Transamerica Title Ins., Co., 88 Cal.App.3d 1, 9 (1978) (quoting Lee v. Title Ins. & Tr. Co., 264 Cal.App.2d 160, 163 (1968)). Additionally, an escrow holder “has no general duty to police the affairs of its depositors.” Summit, 27 Cal.4th at 711. However, “[a]n escrow holder is a fiduciary and like any other fiduciary is under a duty to communicate to [its] principal knowledge acquired in the course of [its] agency with respect to material facts which might affect the principal's decision as to a pending transaction.” Axley, 15188 Cal.App.3d at 9 (citing Contini v. W. ...


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