Olson et al v. Deutsche Bank National Trust Company et al
Filing
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ORDER granting 7 Motion to Dismiss. Plaintiffs shall file an amended complaint on or before 7/26/2013. Signed by Judge David G Campbell on 7/5/2013.(DGC, nvo)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE DISTRICT OF ARIZONA
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Kevin M. Olson and Alyssa N. Olson,
Plaintiffs,
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ORDER
v.
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No. CV13-0642-PHX DGC
Deutsche Bank National Trust Company, as
Trustee of the IndyMac INDX Mortgage
Trust 2007-FLX, Mortgage Pass-Through
Certificates, Series 2007-FLX3 under the
Pooling and Servicing Agreement dated
April 1, 2007; IndyMac, FSB, a Federally
Chartered Savings Bank; Indy Mac Bank
Mortgage Services as advisor of One West
Bank, FSB; OneWest Bank, FSB; and
David W. Cowles, Trustee for March 21,
2007 Deed of Trust
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Defendants.
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Defendants have filed a motion to dismiss. Doc. 7. The motion is fully briefed.
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Doc. 11, 15. No party has requested oral argument. For the reasons that follow, the
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Court will grant the motion.
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I.
Background.
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Plaintiffs Kevin and Alyssa Olson bought property and constructed a house at
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5493 E. Desperado in Gilbert, Arizona. Doc. 1-1 ¶ 9. Plaintiffs refinanced the property,
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resulting in execution of a promissory note and deed of trust (“DOT”) with IndyMac
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Bank, FSB on March 21, 2007, in the amount of $760,000. Id. at ¶ 13. Plaintiffs secured
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a $125,000 equity line of credit with another DOT. Doc. 7-13 at 2.
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In October 2008, Plaintiffs contacted IndyMac Bank about a modification to the
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$760,000 loan. Doc. 1-1 at ¶¶ 20-21. The IndyMac representative told them that the loan
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must be ninety days delinquent before a modification would be considered. Id. at ¶ 22.
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Plaintiffs, who were current on their payments, accordingly did not make a payment for
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three months. Id. at ¶ 23. Plaintiffs contacted IndyMac again, and a representative gave
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verbal approval for a modification and a reduced payment figure. Id. at ¶ 25. After
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making the first reduced payment, however, Plaintiffs received a letter stating that the
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loan modification had been denied. Id. at ¶ 27. Plaintiffs called IndyMac again and were
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told that they qualified for a modification and that the necessary paperwork would arrive
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by April 21, 2009. Id. at ¶¶ 30-31. When the paperwork did not arrive, Plaintiffs called
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weekly to obtain the loan modification paperwork and continued to make the reduced
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payment. Id. at ¶ 32. In July of 2009, Plaintiffs were contacted by realtors about their
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home being in foreclosure. Plaintiffs learned that a trustee’s sale had been noticed on
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their property, but claim they never received the notice. Id. at ¶¶ 33-34.
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Plaintiffs filed for Chapter 13 bankruptcy and an automatic stay prevented the
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trustee’s sale. Id. at ¶¶ 35, 45. During the bankruptcy proceedings, OneWest Bank1
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(which had acquired the $760,000 DOT to Plaintiffs’ home) assigned the DOT to
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Deutsche Bank, which filed a claim in court against Plaintiffs’ home for $821,182.41. Id.
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at ¶¶ 42, 44.
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Plaintiffs were unable to keep up with the Chapter 13 payment plan and converted
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their bankruptcy to Chapter 7. Id. at ¶ 47. Plaintiffs received a full discharge of their
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personal debts on March 29, 2011. Id. at ¶ 49. Deutsch Bank has since noticed a second
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trustee’s sale, and is seeking over $1,000,000 on the $760,000 debt. Id. at ¶ 51.
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II.
Legal Standard.
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When analyzing a complaint for failure to state a claim to relief under Rule
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12(b)(6), the well-pled factual allegations “‘are taken as true and construed in the light
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Defendants claim that IndyMac Bank is an internal division of OneWest Bank.
Doc. 7 at 1-2 n. 1.
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most favorable to the nonmoving party.’” Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th
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Cir. 2009) (citation omitted). Legal conclusions couched as factual allegations “are not
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entitled to the assumption of truth,” Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009), and they
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“‘are insufficient to defeat a motion to dismiss for failure to state a claim.’” In re Cutera
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Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010) (citation omitted). To avoid a Rule
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12(b)(6) dismissal, the complaint must plead enough facts to state a claim to relief that is
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plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This
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plausibility standard “is not akin to a ‘probability requirement,’ but it asks for more than
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a sheer possibility that a defendant has acted unlawfully.”
Iqbal, 556 U.S. at 678
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(quoting Twombly, 550 U.S. at 556). “[W]here the well-pleaded facts do not permit the
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court to infer more than the mere possibility of misconduct, the complaint has alleged B
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but it has not ‘show[n]’ B ‘that the pleader is entitled to relief.’” Id. at 679 (quoting Fed.
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R. Civ. P. 8(a)(2)).
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The Court generally will not consider evidence or documents beyond the
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complaint when ruling on a Rule 12(b)(6) motion. Fed. R. Civ. P. 12(d). “A court may,
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however, consider certain materials – documents attached to the complaint, documents
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incorporated by reference in the complaint, or matters of judicial notice – without
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converting the motion to dismiss into a motion for summary judgment.” United States v.
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Ritchie, 342 F.3d 903, 908 (citations omitted); see also Knievel v. ESPN, 393 F.3d 1068,
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1076 (9th Cir. 2005) (noting that the court may take into account documents “whose
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contents are alleged in a complaint and whose authenticity no party questions, but which
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are not physically attached to the [plaintiff’s] pleading.”).
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Defendants attached exhibits A-U to the motion to dismiss, none of which were
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attached to the complaint. The complaint, however, incorporates by reference exhibits A,
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B, E, F, I, J, M, N, Q, R, and S, and Plaintiffs’ response to the motion to dismiss does not
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contest the authenticity of these documents.
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purposes of this motion. Plaintiffs attached four exhibits to their response, all of which
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were incorporated by reference in the complaint and will also be considered.
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These exhibits will be considered for
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III.
Defendants’ Motion.
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A.
Quiet Title.
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The complaint alleges that the $760,000 promissory note and DOT are
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unenforceable because Plaintiffs’ personal liabilities were discharged in their bankruptcy.
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Doc 1-1 at ¶¶ 53-55. For several reasons, the Court does not agree.
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Bankruptcy discharges personal liability, not valid liens against real property.
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Johnson v. Home State Bank, 501 U.S. 78, 83 (1991); In re Cortez, 191 B.R. 174, 177
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(B.A.P. 9th Cir. 1995). “[A] creditor’s right to foreclose on the mortgage survives . . .
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bankruptcy.” Johnson, 501U.S. at 83.
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Moreover, “[i]t is thoroughly settled that a complaint to quiet title . . . [must] show
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title in the plaintiff[.]” Verde Water & Power Co. v. Salt River Valley Water Users’
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Ass’n, 197 P. 227, 228 (Ariz. 1921). Under Arizona law, legal title passes to the trustee
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upon the execution of a deed of trust. Brant v. Hargrove, 632 P.2d 978, 984 (Ariz. Ct.
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App. 1981) (citations omitted). As trustors under the DOT, Plaintiffs do not hold title
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and thus cannot bring a quiet title claim. See Robertson v. DLJ Mortg. Capital, Inc., No.
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CV–12–8033–PCT–LOA, 2012 WL 4840033, *8 (D. Ariz. Oct. 11, 2012) (“Under
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Arizona law, neither a mortgagee nor a trustor can bring an action to quiet title because
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neither holds title.” (citations omitted)).
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In addition, it is well established in Arizona that “a plaintiff cannot bring a quiet
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title action unless [he] has paid off [his] mortgage in full.” Bergdale v. Countrywide
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Bank FSB, No. CV–12–8057–PCT–GMS, 2012 WL 4120482, *6 (D. Ariz. Sept. 18,
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2012) (citing Farrell v. West, 114 P.2d 910, 911 (Ariz.1941) (“[I]f it appears there is an
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unsatisfied balance due a defendant-mortgagee, or his assignee, the court will not quiet
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the title until and unless [the plaintiff-mortgagor] pays off such mortgage lien.”)); Eason
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v. Indymac Bank, FSB, No. CV 09–1423–PHX–JAT, 2010 WL 1962309, *2 (D. Ariz.
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May 14, 2010) (action to “[q]uiet title is not a remedy available to the trustor until the
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debt is paid or tendered.”); Frazer v. Millennium Bank, No. 2:10–01509 JWS, 2010 WL
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4579799, *4 (D. Ariz. Oct. 29, 2010) (same).
The complaint does not allege that
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Plaintiffs have paid or tendered all amounts owed on the $760,000 loan.
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The Court will dismiss the quiet title claim.
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B.
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The complaint alleges that only $98,423.43 is due on the $760,000 DOT.
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Plaintiffs argue that a proof of claim document filed in their bankruptcy action stated that
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only $98,423.43 was owed on the $760,000 debt, and once that amount is paid, title
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should be quieted in their favor. Doc. 11 at 8; Doc. 11-1 at 4. The Court does not agree.
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Defendants have shown two DOTs attached to the property, one arising from a $125,000
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equity line of credit and the other from the March 21, 2007 loan for $760,000. Doc. 7 at
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4-6. Plaintiffs verify this fact in their response and in exhibits 2 and 3 attached to their
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response. Doc. 11 at 4; doc. 11-1 at 4, 65. The exhibits demonstrate that during
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bankruptcy the amount owed against the $760,000 debt was $821,182.41, and the amount
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owed against the line of credit was $98,423.43. Doc. 7-6 at 2; doc. 7-5 at 2; Doc. 11-1 at
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4, 65. The proof of claim filed in the bankruptcy for the $98,423.43 appears to have been
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mistakenly attached the $760,000 DOT, a clear error in light of other filings in the
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bankruptcy, including a separate proof of claim for the $760,000 debt. Plaintiffs provide
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no legal basis for reducing the amount owed on the $760,000 debt because of an incorrect
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proof of claim, and the Court knows of none. This claim will be dismissed.
Judgment Determining Any Balance Due.
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C.
Release.
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Plaintiffs admit that their release claim is factually flawed and should be
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dismissed. Doc. 11 at 9. Defendants ask that Plaintiffs pay attorneys’ fees and costs
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incurred defending this count. Doc. 15 at 5. The Court will not address fee requests until
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the end of this case and the filing of a properly documented motion for attorneys’ fees.
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D.
Fraud and Abuse of Process.
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Plaintiffs’ claims 4 and 5 are titled “Fraud & Abuse of Process.” The claims
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appear to contend that Defendants made various false statements to the bankruptcy court
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and others. The claims are not sufficiently pled.
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Fraud requires: (1) a representation; (2) its falsity; (3) its materiality; (4) the
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speaker’s knowledge of its falsity or ignorance of its truth; (5) the speaker’s intent that it
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be acted upon by the recipient in the manner reasonably contemplated; (6) the hearer’s
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ignorance of its falsity; (7) the hearer’s reliance on its truth; (8) the right to rely on it;
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(9) his consequent and proximate injury. Echols v. Beauty Built Homes, Inc., 647 P.2d
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629, 631 (Ariz. 1982). When alleging fraud, a party must state with particularity the
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circumstances which constitute fraud. Fed. R. Civ. Pro. 9(b). “Averments of fraud must
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be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.”
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Vess v. Ciba-Geigy Crop. USA, 317 F.3d 1097, 1106 (9th Cir. 2003) (citing Cooper v.
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Picket, 137 F.3d 616, 627 (9th Cir. 1997)).
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Plaintiffs’ allegations in claims 4 and 5 do not plead the elements of fraud with
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particularity. For example, Plaintiffs appear to assert that the fraud was perpetrated
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against the bankruptcy court and others, rather than themselves; they do not claim that
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they were ignorant as to the falsity of any misrepresentations; nor do they claim that they
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relied on the representation’s truth. Doc. 1-1 at 29-30.
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The complaint also alleges that Deutsch Bank’s attempts to conduct a trustee sale
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constitute fraud because “the debt is unenforceable as a result of bankruptcy discharge.”
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Doc. 1-1 at ¶¶ 77-85. As noted above, however, the bankruptcy discharge of Plaintiffs’
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personal liability does not preclude Deutsch Bank from conducting a trustee’s sale.
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Deutsche Banks purported actions under claim 5 do not constitute fraud.
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A claim for abuse of process in Arizona entails (1) a willful act in the use of
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judicial process (2) for an ulterior purpose not proper in the regular conduct of the
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proceeding. Nienstedt v. Wetzel, 651 P.2d 876, 881 (Ariz. Ct. App. 1982). The second
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element requires “a showing that the process has been used primarily to accomplish a
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purpose for which the process was not designed.” Id. The term process “has been
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interpreted broadly, and encompasses the entire range of procedures incident to the
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litigation process.” Id.
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The complaint alleges that OneWest Bank falsely claimed to be the beneficiary of
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the DOT, willfully deceiving the bankruptcy court. Doc 1-1 at ¶¶ 66-71. The complaint
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also alleges that OneWest Bank provided false documentation to the bankruptcy court.
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Id. at ¶¶ 57-60. Actions directed at the bankruptcy court, even if improper, would not
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amount to an abuse of process against Plaintiffs. Abuse of process occurs when a
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defendant abuses the judicial process to harm another individual or party. Courts have
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ample power to redress improper litigation tactics directed at them; abuse of process
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exists to protect parties or other individuals harmed by abuse of the judicial process.
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Plaintiffs have not alleged facts showing that Defendants abused judicial process in a
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manner directed at or causing harm to Plaintiffs.
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Plaintiffs also claim that Defendants abused process by noticing a trustee’s sale.
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Such a sale, however, is an extra-judicial remedy not invoking the judicial process, and
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therefore cannot constitute abuse of that process.
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Claims 4 and 5 fail to plead claims for fraud or abuses of process. Both will be
dismissed.
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E.
Truth in Lending Act and Real Estate Settlement Procedures Act.
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Defendants argue that the claims regarding the Truth in Lending Act (“TILA”) and
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Real Estate Settlement Procedures Act (“RESPA”) should be dismissed because
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sufficient facts have not been pled. “While Rule 8(a)(2) does not require plaintiffs to lay
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out in detail the facts upon which their claims are based, it does require plaintiffs to
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provide ‘a short and plain statement of the claim’ to give the defendants fair notice of
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what the claim is and the grounds upon which it is based.” Holgate v. Baldwin, 425 F.3d
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671, 676 (9th Cir. 2005). Legal conclusions are not adequate to defeat a motion to
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dismiss. Iqbal, 556 U.S. at 680.
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The complaint fails to allege any specific TILA or RESPA violations. Doc. 1-1 at
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¶¶ 86-94. It only “incorporate[s] the allegations” made in all previous paragraphs and
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alleges the statutes have been violated in “numerous ways” and “for various areas of
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interest.” Id. at ¶¶ 86-87, 90-91. Alleging that a statue has been violated, but failing to
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address the factual basis for the claim or what part of the statute have been violated, is
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conclusory and vague. Incorporating fourteen pages of allegations does not give fair
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notice to Defendants of the basis for the claims. The RESPA and TILA claims will be
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dismissed.
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F.
Punitive Damages.
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Because all other claims have will be dismissed, Plaintiffs’ claim for punitive
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damages will also be dismissed. The Court also notes that the complaint pleads few if
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any facts supporting a claim that Defendants possessed an intent to injure Plaintiffs or
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consciously pursued a course of conduct knowing that it created a substantial risk of
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significant harm to others. Gurule v. Illinois Mut. Life and Cas. Co., 734 P.2d 85, 87
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(Ariz. 1987).
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IV.
Leave to Amend.
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Plaintiffs seek leave to amend the complaint. Doc. 11 at 1. “Rule 15(a) declares
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that leave to amend ‘shall be freely given when justice so requires’; this mandate is to be
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heeded.” Foman v. Davis, 371 U.S. 178, 182 (1962). The Court has determined that
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dismissal of the fraud, abuse of process, RESPA, and TILA claims may be cured by
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amendment and are, therefore, dismissed without prejudice. The quiet title, declaratory
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judgment, and release claims cannot be cured by amendment and are dismissed with
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prejudice.
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IT IS ORDERED:
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1.
The motion to dismiss (Doc. 7) is granted.
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2.
Plaintiffs shall file an amended complaint on or before July 26, 2013.
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Dated this 5th day of July, 2013.
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