Richard Gale v. First Franklin Loan Services, et al

Filing

FILED OPINION (SIDNEY R. THOMAS, M. MARGARET MCKEOWN and WILLIAM A. FLETCHER) AFFIRMED IN PART; VACATED IN PART; REMANDED. Each party shall bear its own costs on appeal. Judge: MMM Authoring,. FILED AND ENTERED JUDGMENT. [8247038]

Case: 09-16498

07/12/2012

ID: 8247038

DktEntry: 45-1

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
RICHARD S. GALE,
Plaintiff-Appellant,
v.
FIRST FRANKLIN LOAN SERVICES,
subsidiary of First Franklin
Financial Corporation; FIRST
FRANKLIN FINANCIAL CORPORATION;
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC.; CALWESTERN RECONVEYANCE
CORPORATION; LASALLE BANK
NATIONAL ASSOCIATION,
Defendants-Appellees.





No. 09-16498
D.C. No.
2:08-cv-01615RCJ-PAL
OPINION



Appeal from the United States District Court
for the District of Nevada
Robert Clive Jones, Chief District Judge, Presiding
Argued and Submitted
May 14, 2012—San Francisco, California
Filed July 12, 2012
Before: Sidney R. Thomas, M. Margaret McKeown, and
William A. Fletcher, Circuit Judges.
Opinion by Judge McKeown

8053

Page: 1 of 10

Case: 09-16498

07/12/2012

ID: 8247038

DktEntry: 45-1

GALE v. FIRST FRANKLIN LOAN SERVICES

Page: 2 of 10

8055

COUNSEL
Michael Rubin, Jennifer Sung, ALTSHULER BERZON LLP,
San Francisco, California, for the plaintiff-appellant.
Peter Dunkley, WOLFE & WYMAN LLP, Las Vegas,
Nevada, for defendants-appellees.

OPINION
McKEOWN, Circuit Judge:
Failing to read and respond to letters may be impolite; however, “a breach of good manners” is not always “an invasion
of any legal right.” Spaulding v. Evenson, 149 F. 913, 920
(C.C.E.D. Wa. 1906). Richard Gale faults his lender, First
Franklin Loan Services (“Franklin”), for failing to respond to
his correspondence regarding ownership of his loan, and
alleges that this failure amounted to a violation of the Truth
in Lending Act (“TILA”), and Nevada’s covenant of good
faith and fair dealing. Because Franklin was not legally
required to respond in its capacity as loan servicer, we affirm
the district court’s dismissal of these claims. However, Gale
also alleges that after failing to respond to his letter, Franklin
and the other defendants engaged in illegal conduct by wrong-

Case: 09-16498

8056

07/12/2012

ID: 8247038

DktEntry: 45-1

Page: 3 of 10

GALE v. FIRST FRANKLIN LOAN SERVICES

fully foreclosing on his property. We remand these remaining
state law claims to the district court.
BACKGROUND
In November 2006, Gale refinanced his home mortgage
loan with Franklin, and signed a promissory note. Franklin
was both the creditor and servicer for the loan. A deed of trust
on Gale’s residence in Las Vegas secured the loan. The deed
designated Mortgage Electronic Registration Systems, Inc.
(“MERS”) as the trust beneficiary, “acting solely as a nominee for [Franklin] . . . . ,” and Service Link as the trustee.
By June 2008, Gale had lost his job, defaulted on the loan,
and was facing financial difficulties. In a bid to renegotiate
his loan, he sent a letter to Franklin in June, explaining his
predicament, his resolve to pay the amount due, and suggesting possible solutions. However, to ensure that he was courting the right audience, he also asked that Franklin, “in
accordance with [TILA,] 15 U.S.C. § 1641(f)(2) . . . provide
the name and address of the true owner of the obligation or
holder [of his promissory note]; the original note and indicate
[First Franklin’s] relationship to this entity,” to protect himself from collection efforts by a third party. Gale received no
response to his initial letter, and wrote again in August 2008.
Franklin remained resolutely silent, no renegotiations took
place, and Gale continued to fall behind on his loan payments.
As it turned out, Gale’s loan was the subject of much activity. In August 2008, beneficiary MERS substituted defendant
Cal-Western in place of Service Link as trustee of Gale’s deed
of trust, and together with Cal-Western initiated non-judicial
foreclosure proceedings on Gale’s residence. Later that
month, MERS assigned “all beneficial interest” to “LaSalle
Bank as trustee for the First Franklin Mortgage Loan Trust.”
Finally, in November 2008, Cal-Western recorded a Notice of
Trustee’s Sale of Gale’s home.

Case: 09-16498

07/12/2012

ID: 8247038

DktEntry: 45-1

GALE v. FIRST FRANKLIN LOAN SERVICES

Page: 4 of 10

8057

Gale filed suit against all the actors involved—Franklin,
MERS, Cal-Western and LaSalle Bank—alleging violations
of TILA, seeking injunctive relief against foreclosure, and
claiming breach of contract, failure to act in good faith, and
wrongful foreclosure under Nevada law. The district court
dismissed Gale’s Nevada law claims with prejudice, but permitted Gale to amend his Complaint as to TILA. Gale’s First
Amended Complaint set out his TILA claims more specifically, and claimed a breach of the covenant of good faith and
fair dealing. Gale also alleged that Cal-Western violated its
duty under the Real Estate Settlement Procedures Act
(“RESPA”), 12 U.S.C. § 2605, to respond to his qualified
written request for information. The court dismissed the
amended complaint without leave to amend.1
ANALYSIS
Gale’s suit focuses on two alleged wrongs: Franklin’s failure to reply to his letter, and the foreclosure proceedings on
his home. His federal claims target only Franklin’s failure to
respond; his state claims target both the failure to respond and
the foreclosure.
I.

Federal Claims

[1] In his initial letter to Franklin and again in his amended
complaint, Gale claims that Franklin violated TILA, 15
U.S.C. § 1641(f)(2), which provides in relevant part: “Upon
written request by the obligor, the servicer shall provide the
obligor, to the best knowledge of the servicer, with the name,
address, and telephone number of the owner of the obligation
or the master servicer of the obligation.” Gale’s argument is
simple: Franklin was his loan servicer, and under the plain
language of the statute, was obliged to respond to his inquiry.
1

Although the order did not specify whether the court was granting dismissal, summary judgment, or both, the final judgment reflects that the
district court granted “Defendants’ Motion to Dismiss.”

Case: 09-16498

8058

07/12/2012

ID: 8247038

DktEntry: 45-1

Page: 5 of 10

GALE v. FIRST FRANKLIN LOAN SERVICES

Gale’s argument has surface appeal if we take a blindered
view of the statute and read the language he highlights in isolation. However, “we start with the premise that ‘the words of
a statute must be read in their context and with a view to their
place in the overall statutory scheme.’ ” Am. Bankers Ass’n v.
Gould, 412 F.3d 1081, 1086 (9th Cir. 2005) (quoting Food &
Drug Admin. v. Brown & Williamson Tobacco Corp., 529
U.S. 120, 133 (2000)). Our goal is to “understand the statute
‘as a symmetrical and coherent regulatory scheme’ and to ‘fit,
if possible, all parts into a . . . harmonious whole.’ ” Id. (quoting Brown & Williamson, 529 U.S. at 133). Gale places
emphasis on the final sentence of § 1641(f)(2), but the context
of the sentence within subsection (f), and within § 1641 as a
whole, indicates that liability for failing to respond attaches
only to those servicers who are also assignees of the loan.
Because Franklin was not an assignee of the loan, but rather
the original creditor, Gale’s claim fails.
[2] Consistent with basic principles of statutory interpretation, we step back to examine § 1641 as a whole before focusing on paragraph (f)(2). Section 1641 does not address the
liability of creditors in general; rather each of § 1641’s subsections address entities who are purchasers or assignees of
mortgages. See, e.g., § 1641(a) (A “civil action for a violation
. . . may be maintained against any assignee . . . only if the
violation . . . is apparent on the face of the disclosure statement, except where the assignment was involuntary.”);
§ 1641(b) (concerning statutory compliance by a “subsequent
assignee of the original creditor”); § 1641(c) (“Any consumer
who has the right to rescind a transaction . . . may rescind the
transaction as against any assignee of the obligation.”);
§ 1641(d)(1) (“Any person who purchases or is otherwise
assigned a mortgage . . . shall be subject to all claims and
defenses with respect to that mortgage.”). Subsection (f), the
final subsection of § 1641 at the time Gale’s action accrued,
is no exception.2 Although it concerns servicers in particular,
2

In 2009, Congress added subsection (g), which continues the pattern,
and requires that “not later than 30 days after the date on which a mort-

Case: 09-16498

07/12/2012

ID: 8247038

DktEntry: 45-1

GALE v. FIRST FRANKLIN LOAN SERVICES

Page: 6 of 10

8059

these servicers, like the other entities regulated by § 1641, are
also assignees:
(f) Treatment of servicer
(1) In general
A servicer of a consumer obligation arising from a
consumer credit transaction shall not be treated as an
assignee of such obligation for purposes of this section unless the servicer is or was the owner of the
obligation.
(2) Servicer not treated as owner on basis of assignment for administrative convenience
A servicer of a consumer obligation arising from a
consumer credit transaction shall not be treated as
the owner of the obligation for purposes of this section on the basis of an assignment of the obligation
from the creditor or another assignee to the servicer
solely for the administrative convenience of the servicer in servicing the obligation. Upon written
request by the obligor, the servicer shall provide the
obligor, to the best knowledge of the servicer, with
the name, address, and telephone number of the
owner of the obligation or the master servicer of the
obligation.
Subsection (f), in keeping with the theme of § 1641 as a
whole, and the other subsections of § 1641, addresses only the
assignee liability of a servicer, and sets out a general rule that
gage loan is sold or otherwise transferred or assigned to a third party, the
creditor that is the new owner or assignee of the debt shall notify the borrower in writing of such transfer . . . .” The Helping Families Save Their
Homes Act of 2009, Pub. L. No. 111-22, § 404(g), 123 Stat. 1632, 1658
(2009).

Case: 09-16498

8060

07/12/2012

ID: 8247038

DktEntry: 45-1

Page: 7 of 10

GALE v. FIRST FRANKLIN LOAN SERVICES

a servicer must be the assignee-owner of the obligation to
incur assignee liability. As the House Report for the TILA
amendments that added subsection (f) explained, “A number
of recent consumer lawsuits against mortgage loan servicers
have claimed the servicer is an assignee of the creditor who
made the loan and is therefore liable . . . . This provision clarifies that the loan servicer (the entity collecting payments from
the consumer and otherwise administering the loan) is not an
‘assignee’ under the TILA unless the servicer is the owner of
the loan obligation.” H. R. Rep. No. 104-193, at 99 (1995).
However, Congress did not intend that all servicers who
owned loans would be liable as assignees. Paragraph (f)(2)
carves out an exception to the general rule of paragraph (f)(1),
so that servicers who are merely nominal assignees (that is,
when a servicer is assigned ownership of the loan solely for
“administrative convenience”) would not be liable on the
same basis as actual owners of the loan. The paragraph ends
with the sentence that is the basis of Gale’s claim, which
places on “the servicer” the duty to respond to correspondence from the consumer.
Read in this context, our analysis of this last sentence is
straightforward. As a logical matter, it would be anomalous
for Congress to randomly impose a duty on servicers in general in a section otherwise completely devoted to describing
the duties of assignees, and more critically, in a subsection
that pertains only to servicer-assignees.
Close scrutiny of paragraph f(2) supports the same reading.
The paragraph begins by addressing the duties of “[a] servicer
of a consumer obligation.” The next sentence, on which Gale
states his claim, imposes a duty to respond not upon “a” servicer, or “any” servicer, but rather, states that “the servicer
shall provide the obligor, to the best knowledge of the servicer, with the name, address, and telephone number of the
owner.” (Emphasis added.) “In construing [a] statute, [the]
definite article ‘the’ particularizes the subject which it pre-

Case: 09-16498

07/12/2012

ID: 8247038

DktEntry: 45-1

GALE v. FIRST FRANKLIN LOAN SERVICES

Page: 8 of 10

8061

cedes and is [a] word of limitation as opposed to [the] indefinite or generalizing force [of] ‘a’ or ‘an.’ ” Onink v.
Cardelucci (In re Cardelucci), 285 F.3d 1231, 1234 (9th Cir.
2002) (quoting Black’s Law Dictionary 1477 (6th ed. 1990)).
The use of the definite article in referring to the servicer only
makes sense by reference to the preceding sentence of paragraph (f)(2), which relates to “[a] servicer of a consumer obligation” who is a nominal owner “on the basis of an
assignment of the obligation” for “administrative convenience.” (Emphases added.) Such a servicer escapes liability
because it is only a nominal owner of the note, but must still
respond to an obligor seeking information as to the true owner
of the note.
[3] In short, reading the statute as a whole and with respect
to the subsection at issue brings us to the same conclusion: the
duty to provide notice under § 1641(f)(2) applies only to a
servicer-assignee, which in this case does not include Franklin.
Gale argues for the first time on appeal that Franklin violated RESPA. Although pro se plaintiffs “need not plead specific legal theories in the complaint,” we require that “the
other side receive[ ] notice as to what is at issue in the case”
against it. Sagana v. Tenorio, 384 F.3d 731, 736-37 (9th Cir.
2004) (internal quotation marks and citation omitted). Gale
did not merely fail to plead a RESPA claim against Franklin,
but advanced a RESPA claim against a different defendant,
Cal-Western. We therefore decline to consider the RESPA
claim. See In re Am. W. Airlines, Inc., 217 F.3d 1161, 1165
(9th Cir. 2000).
[4] We are not unsympathetic to the frustration that
resulted from Franklin’s failure to respond to Gale’s inquiry
regarding his home. The servicer is often the only entity that
the consumer is in contact with after the loan issues—unless
the servicer is forthcoming, the homeowner may not know
with whom to negotiate to stave off foreclosure and loss of his

Case: 09-16498

8062

07/12/2012

ID: 8247038

DktEntry: 45-1

Page: 9 of 10

GALE v. FIRST FRANKLIN LOAN SERVICES

abode. Although Congress recognized the importance of such
information after Gale’s claim accrued, see Dodd-Frank Wall
Street Reform and Consumer Protection Act, Pub. L. No. 111203, § 1463, 124 Stat. 1376, 2182 (2010) (amending RESPA
to require all servicers to respond to requests for information),
Gale cannot claim liability under this provision and we affirm
dismissal of his claims arising from Franklin’s failure to
respond.
II.

Nevada State Law Claims

Gale also advances numerous state law claims. The first
claim again arises out of Franklin’s failure to respond, which,
Gale alleges, violated the covenant of good faith and fair dealing. The remaining claims arise out of the actual foreclosure
action against Gale. Gale argues that MERS and LaSalle
wrongfully began foreclosure proceedings, and Cal-Western
breached its duty to act in good faith and its fiduciary duties
in proceeding with the foreclosure. The district court dismissed these claims.
[5] To state a claim for breach of the covenant of good
faith and fair dealing under Nevada law, Gale must show that
Franklin acted in an “arbitrary or unfair” way “to the disadvantage of the” plaintiff. Nelson v. Heer, 163 P.3d 420, 42627 (Nev. 2007). Failing to respond to correspondence in this
context hardly qualifies as “arbitrary or unfair.” The rule Gale
proposes would require contracting parties to respond to correspondence on the pain of legal penalty. In the absence of an
express contractual provision to the contrary, we cannot hold
Franklin to such a standard.
Gale points us to Mitchell v. Bailey & Selover, Inc., which
involved a contract for transportation and storage of property
that gave the bailee “the right to sell [a customer’s] property
if, in the company’s opinion, such action was necessary to
protect its accrued charges.” 605 P.2d 1138, 1139 (Nev.
1980). Although Mitchell contacted the bailee and provided

Case: 09-16498

07/12/2012

ID: 8247038

DktEntry: 45-1

GALE v. FIRST FRANKLIN LOAN SERVICES

Page: 10 of 10

8063

evidence that she was owed social security payments that
would allow her to pay the debt, the bailee sold her property
nonetheless. Because the bailee “knew that [Mitchell’s]
inability to pay her debt might soon be remedied, and in fact
was remedied,” an issue of fact remained as to whether it
could have, as provided by the contract, formed an “opinion”
“that a sale . . . was necessary to protect its accrued charges.”
Id. Without a good faith belief that a sale was necessary, the
bailee could not sell the property.
[6] By contrast, under Gale’s contract, default automatically provides the right of foreclosure, whether or not the
holder of the note and mortgage believes that the default
might be remedied. The holder need form no opinion, in good
faith or otherwise, as to whether its investment is safe, before
it may proceed. Mitchell is therefore inapplicable, and we
affirm the district court’s dismissal of this claim.
[7] Before the district court, Gale invoked Nev. Rev. Stat.
§ 104. That section does not pertain to non-judicial foreclosures, although Gale also claimed inadequacy in the actual
foreclosure process, including lack of ownership of the note.
With the benefit of appointed counsel, Gale’s wrongful foreclosure and related breach of fiduciary duty claims have been
refined on appeal. The district court did not have the opportunity to consider Nevada case law and statutory provisions that
Gale now uses to bolster the claims advanced below. Nonetheless, at this stage, Gale has no remaining federal claims.
We therefore vacate the district court’s dismissal of these
claims, so that the district court may consider Gale’s argument in the first instance, or exercise its discretion to remand
these claims to state court.
AFFIRMED IN PART, VACATED IN PART, and
REMANDED. Each party shall bear its own costs on appeal.