United States District Court, N.D. California, San Jose Division
ORDER GRANTING WITH PREJUDICE JPMORGAN CHASE
BANK'S AND MTC FINANCIAL'S MOTIONS TO DISMISS RE:
DKT. NO. 18, 34, 42
H. KOH United States District Judge.
Christopher Grieves (“Grieves”) sues Defendants
MTC Financial Inc. (“MTC”), JPMorgan Chase Bank,
N.A. (“Chase”), California Reconveyance Company
(“CRC”), U.S. Bank, N.A. (“U.S.
Bank”), and U.S. Bank Trust, N.A. (collectively,
“Defendants”), for causes of action relating to
Grieves's residential mortgage. Before the Court are
Chase's and MTC's motions to dismiss the First
Amended Complaint (“FAC”). ECF Nos. 18, 34. MTC
has also filed a motion to join Chase's motion to dismiss
the FAC. ECF No. 42. The Court finds these matters suitable
for resolution without oral argument, vacated the July 20,
2017 on Chase's motion to dismiss, and hereby VACATES the
August 17, 2017 hearing on MTC's motion to dismiss.
Having considered the submissions of the parties, the
relevant law, and the record in this case, the Court hereby
GRANTS MTC's motion to join Chase's motion to
dismiss, and GRANTS with prejudice Chase's and MTC's
motions to dismiss the FAC.
Plaintiff's Deed of Trust
9, 2006, Grieves borrowed $656, 000.00 from Washington Mutual
Bank, N.A. (“WaMu”), secured by a deed of trust
encumbering property located at 2618 Estates Drive in Aptos,
California (“the Property”). ECF No. 3-22 (First
Amended Complaint, or “FAC”), at ¶¶ 3,
105. The deed of trust (“Deed of Trust”) was
recorded against the Property on May 17, 2006. Id.
¶ 111; see Chase RJN, Ex. 1. California
Reconveyance Company (“CRC”) was listed as the
Trustee. Id. ¶ 114.
alleges that, although WaMu recorded the May 17, 2006 Deed of
Trust, Grieves's residential home loan “was the
product of an illegal table-funded loan originated and
perpetrated by WaMu.” Id. ¶ 112.
Specifically, Grieves alleges that, “[f]rom 2000 to
2008, ” WaMu was able to originate “trillions in
mortgage loans” because WaMu was able to
“‘securitize' the mortgages into privately
held investment conduits that allowed [WaMu] to draft [its]
own underwriting guidelines.” Id. ¶ 17.
Grieves alleges that “[o]nce the mortgages were
securitized, ” the mortgages were owned by
“special purpose entities” and the mortgages were
taken off of WaMu's balance sheets. Id. ¶
18. Grieves alleges that, “[a]lthough securitization
was originally created as a post-origination transaction
where bundles of mortgages [were] pooled together and sold
off in bulk to [special purpose entities], as demand grew for
mortgage-back[ed] securities in the market place, originators
started creating [special purpose entities] prior to any loan
being originated.” Id. ¶ 19. According to
Grieves, these special purpose entities could
“anonymously fund loans based off of any underwriting
guidelines” allowed. Id. Grieves alleges that
“[i]n these ‘stranger funded' transactions,
” WaMu called itself a “lender, ” but WaMu
in fact drew its loan funds from these “pre-funded
[special purpose entities].” Id. ¶ 20. In
effect, Grieves states, WaMu acted “as a broker, that
facilitated these stranger-funded loans, maintaining
only” the servicing rights to Grieves's mortgage.
Id. ¶ 20.
alleges that this “process of stranger funding loans is
commonly known as ‘table-funding, '” which is
a process in which “the brokering originator brings a
third-party funding source (usually unknown to the broker) to
the closing table at escrow to complete the
transaction.” Id. at 21. Grieves alleges that,
because his home loan was “table funded” at its
origination, Grieves's Deed of Trust was void ab
initio. See, e.g., id. ¶ 129.
Closing of WaMu, Chase's Assignment of the Deed of Trust
to U.S. Bank, and First Notice of Default
September 25, 2008, the Office of Thrift Supervision closed
WaMu and appointed the Federal Deposit Insurance Corporation
(“FDIC”) as Receiver. On that same date, Chase
entered into a Purchase and Assumption Agreement
(“P&A Agreement”) with the FDIC, through
which Chase acquired WaMu's assets. See Pl. RJN,
16, 2011, Chase assigned Grieves's Deed of Trust to U.S.
Bank. Id. ¶ 118; see Chase RJN, Ex. 2.
The assignment was recorded on June 23, 2011. See
FAC ¶118; Chase RJN, Ex. 2. Grieves alleges that,
despite this “purported” assignment of the Deed
of Trust to U.S. Bank, Grieves's Deed of Trust was
“void at that time” because of WaMu's illegal
table funding. FAC ¶ 119. Grieves further alleges that
U.S. Bank never provided Grieves with “any written
notice whatsoever of the assignment.” Id.
23, 2011, CRC as Trustee recorded a Notice of Default and
Election to Sell Under Deed of Trust against the Property.
Id. ¶ 127-28; see Chase RJN, Ex. 3.
Grieves alleges that “[a]t the time of the execution
and recording of the [June 23, 2011] Notice of Default,
” Grieves's Deed of Trust “had been void for
five (5) years” because of WaMu's illegal table
funding. Id. ¶ 129.
September 26, 2011, CRC as Trustee executed and recorded a
Notice of Trustee's sale. Id. ¶ 132;
see RJN, Ex. 4. Grieves alleges, however, that
“the Grieves [Deed of Trust] was void at that
time” because of WaMu's illegal table funding. FAC
The Potter Action in State Court
2011, Grieves and 426 other individuals (“the
Potter Plaintiffs”) brought suit in the
Superior Court for the County of Los Angeles against Chase;
Chase Home Finance, LLC; Long Beach Mortgage Company; EMC
Mortgage Corporation; Bear Stearns; EAppraiseit; First
American Corporation; CRC; and the FDIC (collectively,
“the Potter Defendants”). See
Chase RJN, Ex. 9 (“Potter Compl.”). The
operative complaint in the state court lawsuit, Potter,
v. JPMorgan Chase Bank, N.A., Case No. BC459627
(hereinafter, “the Potter Action”), was
the fourth amended complaint, which was filed on December 21,
fourth amended complaint in the Potter Action was
150 pages in length. Id. The fourth amended
complaint alleged a “massive and centrally directed
fraud by which [the Potter] Defendants placed
homeowners into loans which [the Potter] Defendants
knew [the Potter] Plaintiffs could not
afford, abandoned industry standard underwriting guidelines,
and intentionally inflated the appraisal values of homes
throughout California for the sole purpose of herding as many
borrowers as they could into the largest loans possible which
[the Potter] Defendants would then sell on the
secondary market.” Id. ¶ 2. The
Potter Action alleged that, beginning in early 2000,
WaMu “shifted its focus from originating a more limited
number of prudently-underwritten safe loans to an all-out
volume model in which” WaMu sold home loans to
secondary market investors. Id. ¶ 76. Further,
the Potter Action complaint alleged that WaMu
“fuel[ed] the ever growing securitization
machine” by originating and funding new loans through
various divisions of WaMu. Id. ¶¶ 77-79.
WaMu “sold or securitized most of the subprime home
loans [WaMu] acquired, ” id. ¶ 88, which
caused a “race to the bottom” wherein the
Potter Defendants “disregarded underwriting
standards” and “induced [the Potter]
Plaintiffs into mortgage products they knew would devastate
both [the Potter] Plaintiffs and the economy,
” “[a]ll in the name of selling mortgages on the
secondary market for spectacular profit.” Id.
Potter Action complaint alleged that, from 2003 to
2008, the Potter Defendants misrepresented and
concealed “[t]hat [the Potter] Defendants were
in fact dependent on selling loans [they] originated into the
secondary mortgage market, ” and that the
Potter Defendants had “morphed into a loan
conveyor belt, packaging loans with little if any regard for
their underwriting standards, and selling those loans at
extravagant profit to investors on the secondary
market.” See Id. at ¶ 213. The
Potter Plaintiffs alleged that, “[a]s a result
of [the Potter] Defendants' improper scheme,
[the Potter] Plaintiffs lost equity in their homes
[and] their credit ratings and histories were damaged or
destroyed.” Id. ¶ 119.
Potter Action complaint further alleged that the
Potter Defendants, including WaMu and Chase, made
money by initiating foreclosure proceedings “without
having any true possessory or ownership interest in the deed
of trust.” Id. ¶ 274. According to the
Potter Plaintiffs, “[s]ecuritizing a loan
generally entails the sale of a loan to private investors,
” which the Potter Plaintiffs alleged resulted
in the ultimate note holders being “many, disparate and
unrelated entities, no one of which can lawfully enforce the
note without the participation of all the other anonymous
note holders to partial interests in a single home
loan.” Id. ¶ 277. The Potter
Plaintiffs alleged that the Potter Defendants
continued to demand payments under the Potter
Plaintiffs' respective promissory notes and deeds of
trust, despite the fact that the Potter Defendants
“have no proof that they own the notes and deeds of
trust they seek to enforce.” Id. ¶ 278.
One, Two, and Three of the operative Potter Action
complaint alleged that the Potter Defendants engaged
in fraudulent concealment, intentional misrepresentation, and
negligent misrepresentation by, beginning in January 2003,
“pool[ing] [home] loans, fraudulently inflat[ing] the
value of these pooled loans[, ] and then sell[ing] the pools
to unsuspecting investors for grossly unmerited
profits.” See, e.g., id. ¶¶
327, 358. The Potter Plaintiffs alleged that the
Potter Defendants failed to disclose, among other
facts, that the Potter Defendants “were
selling their loans to investors rather than holding their
loans, ” and that the Potter “Defendants
were making loans simply to create sufficient product to sell
to investors for profit.” Id. ¶¶
333, 382. The Potter Plaintiffs alleged that, as a
proximate result of the Potter Defendants'
conduct, the Potter Plaintiffs suffered “loss
of equity in their houses, costs and expenses related to
protecting themselves, reduced credit scores, unavailability
of credit, reduced availability of goods and services tied to
credit ratings, increased costs of those services, as well as
fees and costs.” Id. ¶¶ 350, 399.
Four alleged that Defendants violated California's UCL.
See Id. ¶ 416. Among other allegations, the
complaint alleged that the Potter Defendants
violated the Patriot Act by “failing to adequately
identify the source of funds used to fund mortgages and fund
the securitization pools that purchased mortgages, ”
id. ¶ 432; that the Potter Defendants
“violated California common law by pursuing
foreclosures through mere nominees . . . and without proof
[Defendants] owned the notes and deeds of trust underlying
their foreclosure actions, ” id. ¶ 435;
and that the Potter Defendants violated UCC 3-301 by
“foreclosing on [the Potter] Plaintiffs
without being ‘holders' or in possession of their
respective Notes, ” id. ¶ 439. According
to Plaintiffs, Defendants' violations caused “loss
of equity in [the Potter Plaintiffs'] houses,
costs and expenses related to protecting themselves, reduced
credit scores, unavailability of credit, increased costs of
credit, reduced availability of goods and services tied to
credit ratings, increased costs of those services, as well as
fees and costs.” Id. ¶ 449.
addition, a subset of the Potter Plaintiffs whose
homes had already been sold at foreclosure-a subset of
plaintiffs that did not include Grieves-alleged in Count Five
of the Potter Action that the Potter
Defendants had engaged in wrongful foreclosure. See
Id. ¶ 459.
the Potter Plaintiffs filed the fourth amended
complaint, the FDIC removed the Potter Action to the
U.S. District Court for the Central District of California on
February 8, 2013, and asserted federal jurisdiction because
the FDIC was a defendant. See Potter v. JPMorgan Chase
Bank, N.A., 2013 WL 1912718, at *1 (C.D. Cal. May 8,
2013). However, on May 8, 2013, the district court granted
FDIC's motion to dismiss FDIC as defendant, and the
district court declined to exercise supplemental jurisdiction
over the state law claims. Id. Accordingly, the
Potter Action was remanded to the Los Angeles County
Superior Court on May 10, 2013. Id.
2, 2014, the Los Angeles County Superior Court issued an
order in the Potter Action dismissing the fourth
amended complaint with prejudice. See Chase RJN, Ex.
10. The state court noted that the fourth amended complaint
“track[ed] the allegations in Ronald v. Bank of
America, 198 Cal.App.4th 862 (Cal.Ct.App. 2011), in
addition to another set of cases against Wells Fargo, the
Wells Fargo Bank Mortgage Cases, Coordinated Docket
No. JCCP4711. Id. at 6. Indeed, because the state
court found the allegations in the Potter Action
were so similar to these earlier cases, the state court
concluded that “repetition is pointless” and the
state court incorporated the reasoning of Ronald and
the Wells Fargo Bank Mortgage Cases into the state
court's order dismissing the Potter Action.
Id. The state court also noted that the
Potter Plaintiffs were “trying to fight on in
the face of their defeat against FDIC in federal court on the
theory that somehow [Chase] is responsible for the
pre-liquidation torts of WaMu, ” which had already been
rejected. Id. at 7. Accordingly, the state court
sustained Chase's demurrer to the fourth amended
complaint without leave to amend. Id. at 6-7.
18, 2014, the state court entered judgment in favor of Chase
and against the Potter Plaintiffs. RJN, Ex. 11.
Substitution of MTC as Trustee under Grieves's Deed of
Trust, and the 2016 Trustee's Sale
March 3, 2015, U.S. Bank recorded a Substitution of Trustee,
which substituted MTC as Trustee under the Deed of Trust.
See Chase RJN, Ex. 5.
April 23, 2015, MTC recorded a Notice of Default and Election
to Sell Under Deed of Trust against the Property. FAC ¶
133; see Chase RJN, Ex. 6. According to Grieves, the
Deed of Trust was void at the time that MTC recorded the
Notice of Default because of WaMu's illegal table
funding. See FAC ¶ 133.
December 3, 2015, MTC recorded a Notice of Trustee's Sale
against the Property, which scheduled a Trustee's Sale
for January 13, 2016. See Chase RJN, Ex. 7. On
January 20, 2016, MTC recorded a Trustee's Deed upon
sale. See Chase RJN, Ex. 8.
Procedural History of the Instant Case
March 15, 2016, Grieves and 7 other individuals filed a
complaint against MTC and Chase in Orange County Superior
Court. See ECF No. 1-2. The complaint alleged only
state law causes of action for (1) intentional
misrepresentation; (2) negligent misrepresentation; (3)
violation of California's Homeowner Bill of Rights, Cal.
Civ. Code § 2924.17; (4) violation of California's
Homeowner Bill ...