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Duarte v. Quality Loan Service Corp.

United States District Court, C.D. California

May 7, 2018

Brenda DUARTE and Hector SANCHEZ, Plaintiffs,




         On November 20, 2017, Plaintiffs Hector Sanchez and Brenda Duarte filed a Complaint against Defendants Quality Loan Servicing Corp., Quality Loan Service Corporation (together, “Quality”), and Quantum Servicing Corporation[1] (“Quantum”), alleging violations of the Equal Credit Opportunity Act, 15 U.S.C. § 1691, and the Civil Rights Act of 1991, 42 U.S.C. § 1981, along with four state law claims. (See generally Compl., ECF No. 1.) Plaintiffs later filed a First Amended Complaint, which Quantum now moves to dismiss in its entirety. (First Am. Compl. (“FAC”), ECF No. 14.; Mot. 2, ECF No. 27.) For the reasons discussed below, the Court GRANTS Defendants' Motion to Dismiss.[2]


         In 2005, Plaintiffs applied for a mortgage loan with First Magnus Financial (“First Magnus”) in the amount of $412, 000. (FAC ¶ 19, ECF No. 14.) First Magnus approved the mortgage, and the loan was secured by a deed of trust on Plaintiffs' family home in Long Beach, California (the “Property”). (FAC ¶ 2.) Plaintiffs later refinanced the Property with American Brokers Conduit (“ABC”), receiving a new loan in the amount of $472, 000. (FAC ¶ 20.) In 2007, First Magnus and ABC were identified by the Federal Reserve as subprime lenders involved in predatory loans. (FAC ¶ 2.)

         In 2010, ABC assigned Plaintiffs' loan to Defendants Quality and Quantum. (FAC ¶ 2.) The balance on the loan at the time of assignment was $472, 200. (FAC ¶ 21.) Quality and Quantum acted together as lender and servicer for Plaintiffs' loan. (FAC ¶ 3.)

         Plaintiffs are Hispanic, and Defendants knew this to be the case. (FAC ¶ 7.) Since 2005, Hispanics, as a group, have lost a disproportionate share of their family wealth compared to non-Hispanic whites. (FAC ¶ 8.) Plaintiffs themselves lost over 60% of their income between 2005 and 2007. (FAC ¶ 9.) From 2008 to 2011, Plaintiffs “slowly began to recover” their income. (FAC ¶ 9.)

         However, Plaintiffs continued to struggle financially throughout this period. (FAC ¶¶ 9-10.) By 2011, “they had one or more children, and had to account for those expenses.” (FAC ¶ 9.) Several times between 2010 and 2012, Plaintiffs informed Defendants of their financial struggles, and Plaintiffs made numerous requests for a modification of the mortgage loan. (FAC ¶¶ 10, 22, 32.) Defendants denied these loan modification requests, in contravention of best practices suggested by the Office of the Comptroller of the Currency. (FAC ¶¶ 24, 34.) In fact, Defendants rarely, if ever, granted the type of loan modification that would allow severely distressed borrowers to remain in their homes; instead, Defendants “maneuver[ed] homeowners toward default, foreclosure, eviction, and money judgments.” (FAC ¶ 25.) As part of their collection efforts, Defendants have filed lawsuits against Latinos in Los Angeles County and Orange County Superior Courts for similar delinquent mortgages. (FAC ¶ 24.)

         Plaintiffs do not specify in their First Amended Complaint exactly when Plaintiffs defaulted on their loan. (See generally FAC.) In 2012, Defendants moved to foreclose on the loan. (FAC ¶ 22.) In 2011, rates of foreclosure among Hispanic home loan borrowers were higher than rates of foreclosure among non-Hispanic White borrowers. (FAC ¶ 33.) Plaintiffs were ultimately evicted from the Property. (FAC ¶ 57.)

         Following foreclosure, Defendants reported Plaintiffs' loan delinquency to the credit reporting agencies. (FAC ¶¶ 22, 26, 39, 49, 56, 71.) The First Amended Complaint is ambiguous as to when or how often Defendants reported Plaintiffs' delinquency. Portions of the Complaint seem to indicate that Defendants reported Plaintiffs' delinquency just once, and thereafter merely failed to subsequently advise the agencies that the underlying loan was predatory. (FAC ¶¶ 26, 39.) Elsewhere, Plaintiffs allege that Defendants made “annual” reports of Plaintiffs' delinquency. (FAC ¶ 71.) Plaintiffs further allege that Defendants “continued” to report Plaintiffs' delinquency until either 2016 or 2017.[3] (FAC ¶¶ 22, 49, 56.)

         On November 2, 2017, Plaintiffs filed their initial Complaint in federal court, bringing two causes of action under federal law and four causes of action under California state law. (ECF No. 1.) Plaintiffs subsequently filed a First Amended Complaint on January 15, 2018. (ECF No. 14.) On February 26, 2018, Quantum moved to dismiss the First Amended Complaint in its entirety. (ECF No. 27.) Quality has yet to appear in this case. Both Plaintiffs and Quantum have submitted briefs in support of their respective positions, and the Motion is ripe for determination. (ECF Nos. 27, 30, 33.)


         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is proper if the complaint “lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008).

         In ruling on a motion to dismiss under Rule 12(b)(6), the court assumes all factual allegations in the complaint to be true, viewing those allegations in the light most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 896 (9th Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). While a plaintiff need not give “detailed factual allegations, ” the plaintiff must plead sufficient facts that, if true, “raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Moreover, a court need not “accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). Ultimately, “[t]he claim must be sufficiently plausible that ‘it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation.'” Mora v. U.S. Bank, No. CV 15-02436 DDP (AJWx), 2015 WL 4537218, at *2 (C.D. Cal July 27, 2015) (quoting Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011)). If a court determines that a complaint fails to state a claim, the court should grant leave to amend unless it determines that amendment could not possibly cure the complaint's deficiencies. Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1296 (9th Cir. 1998); Fed.R.Civ.P. 15(a)

         IV. ANALYSIS

         For the reasons discussed below, the Court finds that Plaintiffs fail to state a claim for relief. Plaintiffs' First and Second Causes of Action are time-barred, and Plaintiffs' Third, Fourth, Fifth, and Sixth Causes of Action fail on the merits.

         A. Material outside the Complaint

         Generally, a court “may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion.” United States v. Corinthian Colls., 655 F.3d 984, 998 (9th Cir. 2011). However, courts in the Ninth Circuit ruling on 12(b)(6) motions may consider: (1) material that was “properly submitted as part of the complaint, ” Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555, n.19 (9th Cir. 1989); (2) materials whose authenticity is not questioned and on which the Plaintiff's complaint necessarily relies, Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001), and (3) judicially noticed matters of public record, id. at 688-89.

         Both Quantum and Plaintiffs ask the Court to consider certain materials outside the four corners of the Complaint. (Def.'s Req. Jud. Notice Ex. 1 at 5, ECF No. 27-2; FAC Ex.1, Ex. 2; Decl. of Herbert N. Wiggins (“Wiggins Decl.”) Ex. 1, ECF No. 32-1.) The Court first considers Quantum's requests.

         1. Quantum's Requests for Judicial Notice

         Quantum asks the Court to judicially notice that the Property was sold at a non-judicial foreclosure sale on February 27, 2012.[4] (Def.'s Req. Jud. Notice Ex. 1 at 6.) Judicial notice is appropriate when the fact to be noticed “is not subject to reasonable dispute because it . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Fed.R.Civ.P. 201(b)(2); see also Lee, 250 F.3d at 689 (recognizing that a court may take judicial notice of facts in the public record). If a party requests judicial notice of a fact and supplies the Court with the necessary information, the Court must take judicial notice of the fact. Fed.R.Civ.P. 201(c)(2).

         The source of the date of the foreclosure sale of the Property is the Trustee's Deed Upon Sale, which is filed at the Los Angeles County Recorder's Office. (Def.'s Req. Jud. Notice Ex. 1.) The Court finds that the accuracy of official records in the County Recorder's Office cannot reasonably be questioned, and therefore finds that the date of the foreclosure sale is beyond reasonable dispute. See Snyder v. HSBC Bank, USA, N.A., 913 F.Supp.2d 755, 768 (D. Ariz. 2012) (taking judicial notice of a publicly-recorded Trustees' Deed Upon Sale, where defendants provided the court a complete copy and plaintiffs did not object to the request). Moreover, Plaintiffs have not objected to the accuracy of this date. (See generally Opp'n, ECF No. 30.) Therefore, the Court takes judicial notice of the fact that the Property was sold at a non-judicial foreclosure sale on February 27, 2012.

         Quantum also asks the Court to judicially notice the results of an online search of Los Angeles County Superior Court records for two case numbers that appear in the First Amended Complaint. (See Def.'s Req. Jud. Notice Exs. 2, 3; FAC ¶ 12(D).) The Court has no need to rely on the contents of the results of these two searches, and the Court therefore declines to address whether these documents are subject to judicial notice.

         2. Plaintiffs' Materials in Support of the Complaint

         Plaintiffs present several materials to the Court in support of their claim for relief. First, Plaintiffs present three studies. Two are attached to the Complaint. (FAC Ex.1, Ex. 2.) The third is attached to a declaration submitted by Plaintiffs' attorney in support of Plaintiffs' Opposition to the Motion to Dismiss. (Wiggins Decl. Ex. 1.) Plaintiffs also present a property profile for the Property that is the subject of this dispute. (Pls.' Req. Jud. Notice Ex. 1, ECF No. 31-1.)

         The Court need not rely upon any of these documents in ruling on this motion, because Plaintiffs set forth the statistics that purportedly support their claim in their First Amended Complaint. (See FAC ¶¶ 3, 8, 9, 23, 27, 30, 31.) Because the Complaint itself contains the relevant data, the Court has no need to go beyond the four corners of the Complaint to consider the studies themselves. With regards to the property profile, Plaintiffs' Complaint neither relies on nor refers to any of the events or dates listed in the property profile, with the exception of the date of the foreclosure sale itself, which the Court judicially notices. Therefore, the Court likewise has no need to refer to or make use of any of the dates or events in the property profile.

         Because the Court will not rely on any of these documents in ruling on this Motion, the Court declines to address whether these documents are subject to judicial notice.

         B. Plaintiffs' ECOA Claim Is Time-Barred

         Plaintiffs first allege a series of violations of the Equal Credit Opportunity Act (“ECOA”), relating to Defendants' 2012 foreclosure of Plaintiffs' home loan. However, an action under the ECOA must be filed within five years of the date of the alleged violation. 15 U.S.C. § 1691e(f). Plaintiffs filed their complaint on November 2, 2017. (ECF No. 1.) Therefore, an action for any violation that occurred before November 2, 2012 is time-barred.

         The non-judicial foreclosure sale of the home took place on February 27, 2012. See supra Section IV.A.1. Because the foreclosure sale occurred outside ECOA's period of limitations, any ECOA claim arising from the foreclosure sale itself is time-barred. For the same reason, any legal claim on an ECOA violation occurring before the foreclosure sale is likewise time-barred.

         Thus, the only acts of Defendants that fall within the ECOA's five-year period of limitations are the annual reports of Plaintiffs' default that Defendants made to the credit bureaus. (FAC ¶ 71.) The Court finds two bases on which to conclude that these annual reports do not violate the provisions of the ECOA.

         1. Discrimination

         The ECOA provides that “[i]t shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction . . . on the basis of race.” 15 U.S.C. § 1691(a)(1). “The ECOA allows for a cause of action for either overtly discriminatory policies or facially neutral policies that have a discriminatory effect.” Mora, 2015 WL 4537218 at *6; see also Taylor v. Accredited Home Lenders, Inc., 580 F.Supp.2d 1062, 1067 (S.D. Cal. 2008) (confirming that disparate impact claims are allowable under the ECOA). Plaintiffs in this case have elected the latter option, alleging and pursuing a disparate impact theory of discrimination. (FAC ¶¶ 27, 35, 37, 46.) To show disparate impact, an ECOA plaintiff “must plead (1) the existence of outwardly neutral practices; (2) a significantly adverse or disproportionate impact on persons of a particular type produced by the defendant's facially neutral acts or practices; and (3) facts demonstrating a causal connection between the specific challenged practice or policy and the alleged disparate impact.” Hernandez v. Sutter W. Capital, No. C 09-03658 CRB, 2010 WL 3385046, at *3 (N.D. Cal Aug. 26, 2010). The Court finds that Defendants' actions in the five years preceding Plaintiffs' filing of their Complaint fail to provide the basis for a disparate impact claim on all three counts.

         First, in pleading the existence of outwardly neutral practices, a plaintiff must point to a “specific, identified . . . practice or selection criterion.” Ramirez v. GreenPoint Mortg. Funding, Inc., 633 F.Supp.2d 922, 927 (N.D. Cal. 2008) (quoting Stout v. Potter, 276 F.3d 1118, 1121 (9th Cir. 2002)). Thus, a plaintiff alleging disparate impact “generally cannot attack an overall decisionmaking process . . . but must instead identify the particular element or practice within the process that causes an adverse impact.” Stout, 276 F.3d at 1125. While Plaintiffs do allege that Defendants reported Plaintiffs' delinquency to the credit reporting agencies “as part of their collection process, ” Plaintiffs fail to allege any facts relating to a specific practice, policy, or selection criterion that Defendants followed in preparing and sending reports to the credit reporting agencies. (FAC ¶ 39 (emphasis in original).)

         Moreover, a series of specific, bilateral transactions concerning a lender and a single borrower, without more, cannot provide a basis for disparate-impact liability. Disparate impact liability generally rests on the notion that a class of people has been disparately impacted by a defendant's policies, and, as such, a lender must have applied its policy to many individual borrowers both inside and outside the class in order for a plaintiff to be able to conduct a disparate impact analysis in the first place. See Barrett v. H & R Block, Inc., 652 F.Supp.2d 104, 110 (“[A] plaintiff must demonstrate that it is the application of a specific or particular . . . practice that has created the disparate impact under attack.”) (quoting Wards Cove Packing Co., Inc. v. Atonio, 490 U.S. 642, 657 (1989)). Disregarding events falling outside ECOA's period of limitations, Plaintiffs have alleged that Defendants made annual credit reports, but they fail to allege that Defendants made annual reports about anyone other than Plaintiffs. (FAC ¶ 71.) Plaintiffs allege no facts or data that show that Defendants maintained a policy and applied that policy to several customers, and therefore, Plaintiffs have not alleged the kind of “specific or particular” policy necessary to conduct a disparate impact analysis. Wards ...

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