Sandry et al v. First Franklin Financial Corporation et al

Filing 34

MEMORANDUM Decision Regarding Defendants' 20 Motion to Dismiss First Amended Complaint signed by Judge Oliver W. Wanger on 4/19/2011. (Proposed Order Consistent with Memorandum Decision Deadline: 4/27/2011) (Figueroa, O)

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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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1:10-cv-01923-OWW-SKO
CHAD DILLON SANDRY,

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MEMORANDUM DECISION REGARDING
DEFENDANTS’ MOTION TO DISMISS
FIRST AMENDED COMPLAINT (Doc.
20).

Plaintiff,

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v.

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FIRST FRANKLIN FINANCIAL
CORP., et al.,

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Defendants.

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I. INTRODUCTION.

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Plaintiffs

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Chad

Dillon

Sandry

and

Melanie

E.

Seasholtz

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(“Plaintiffs”) proceed with an action for damages and injunctive

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relief.

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complaint (“FAC”).

On December 28, 2010, Plaintiffs filed a first amended

Defendants First Franklin Financial Corp., Home Loan Services,

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Inc.,

and

Mortgage

Electronic

Registration

Systems,

Inc.

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(“Defendants”) filed a motion to dismiss the FAC on January 7,

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2011. (Doc. 20). Defendants also filed a motion to strike portions

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of the FAC.

(Doc. 22).

Plaintiffs filed opposition to Defendants’ motions on February

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1, 2011.

(Docs. 29, 30).

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2011. (Docs. 14, 15).

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Defendants filed a reply on March 14,

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II. FACTUAL BACKGROUND.

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This action arises out of a loan Plaintiffs obtained for the

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purchase

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Plaintiffs first met with David Hoggett (“Hoggett”), an employee of

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Loan Review.

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possible” loan for them.

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First Franklin.

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property

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falsification.

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of

their

by

home

in

or

about

2007

(“subject

loan”).

Hoggett told Plaintiff’s he would get “the best
Hoggett submitted a loan application to

The loan application overstated the value of the

$95,000.00;

Plaintiffs

were

not

aware

of

this

The actual value of the property was insufficient

to qualify for the loan.

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Plaintiffs allege that First Franklin and Loan Review had an

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agreement in place whereby First Franklin would accept loans

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containing knowingly false information.

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that Loan Review held itself out as First Franklin’s agent, and

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that First Franklin paid Loan Review for leading Plaintiff’s into

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a loan they did not qualify for.

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it “dealt directly with First Franklin and they would fund or

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approve the loan [] due to the relationship with First Franklin.”

Plaintiffs further allege

Loan Review told Plaintiffs that

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Plaintiffs allege that Defendants never explained the full

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terms of their loan, including but not limited to the interest

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rate, how the rate would be calculated, what the payment schedule

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would be, the risks and disadvantages of the loan, prepayment

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penalties, and other information.

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signing the documents. Defendants failed to disclose that the loan

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was designed to guarantee negative amortization if Plaintiffs

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followed the payment schedule.

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Plaintiffs were rushed into

III. LEGAL STANDARD.

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Dismissal

under

Rule

12(b)(6)

is

appropriate

where

the

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complaint lacks sufficient facts to support a cognizable legal

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theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th

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Cir.1990). To sufficiently state a claim to relief and survive a

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12(b) (6) motion, the pleading “does not need detailed factual

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allegations” but the “[f]actual allegations must be enough to raise

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a right to relief above the speculative level.” Bell Atl. Corp. v.

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Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

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Mere “labels and conclusions” or a “formulaic recitation of the

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elements of a cause of action will not do.” Id. Rather, there must

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be “enough facts to state a claim to relief that is plausible on

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its face.” Id. at 570. In other words, the “complaint must contain

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sufficient factual matter, accepted as true, to state a claim to

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relief that is plausible on its face.” Ashcroft v. Iqbal, --- U.S.

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----, ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal

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quotation marks omitted).

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The Ninth Circuit has summarized the governing standard, in

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light of Twombly and Iqbal, as follows: “In sum, for a complaint to

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survive a motion to dismiss, the nonconclusory factual content, and

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reasonable

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suggestive of a claim entitling the plaintiff to relief.” Moss v.

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U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.2009) (internal

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quotation marks omitted). Apart from factual insufficiency, a

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complaint is also subject to dismissal under Rule 12(b)(6) where it

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lacks a cognizable legal theory, Balistreri, 901 F.2d at 699, or

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where the allegations on their face “show that relief is barred”

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for some legal reason, Jones v. Bock, 549 U.S. 199, 215, 127 S.Ct.

inferences

from

that

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content,

must

be

plausibly

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910, 166 L.Ed.2d 798 (2007).

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In deciding whether to grant a motion to dismiss, the court

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must accept as true all “well-pleaded factual allegations” in the

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pleading under attack. Iqbal, 129 S.Ct. at 1950. A court is not,

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however, “required to accept as true allegations that are merely

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conclusory,

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inferences.” Sprewell v. Golden State Warriors, 266 F.3d 979, 988

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(9th Cir.2001). “When ruling on a Rule 12(b)(6) motion to dismiss,

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if a district court considers evidence outside the pleadings, it

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must normally convert the 12(b)(6) motion into a Rule 56 motion for

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summary

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opportunity to respond.”

United States v. Ritchie, 342 F.3d 903,

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907

court

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materials-documents

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incorporated by reference in the complaint, or matters of judicial

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notice-without converting the motion to dismiss into a motion for

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summary judgment.” Id. at 908.

(9th

unwarranted

judgment,

Cir.2003).

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“A

it

must

attached

of

give

may,
to

fact,

the

unreasonable

nonmoving

however,
the

or

party

consider

complaint,

an

certain

documents

IV. DISCUSSION.

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and

deductions

A. First Cause of Action: Deceit
Plaintiffs’ first cause of action asserts a claim under

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California Civil Code section 1572 for “deceit.”

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defines fraud, but it does not create a cause of action; rather

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California Civil Code section 1709 creates liability for fraudulent

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deceit.

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mirrors the allegations of the original complaint’s first cause of

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action for fraud.

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claim pled in Plaintiffs’ original complaint provides in part:

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Cal. Civ. Code § 1709.

Section 1572

The FAC’s first cause of action

The memorandum decision dismissing the fraud

Federal Rule of Civil Procedure 9(b) imposes an elevated
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pleading standard with respect to fraud claims..."To
comply with Rule 9(b), allegations of fraud must be
specific enough to give defendants notice of the
particular misconduct which is alleged to constitute the
fraud." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir.
2007) (internal quotation marks omitted). Allegations of
fraud must include the "time, place, and specific content
of the false representations as well as the identities of
the parties to the misrepresentations." Id. (internal
quotation marks omitted). The "[a]verments of fraud must
be accompanied by the who, what, when, where, and how of
the misconduct charged." Kearns v. Ford Motor Co., 567
F.3d 1120, 1124 (9th Cir. 2009) (internal quotation marks
omitted). A plaintiff alleging fraud "must set forth more
than the neutral facts necessary to identify the
transaction. The plaintiff must set forth what is false
or misleading about a statement, and why it is false."
Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th
Cir. 2003).
The complaint fails to satisfy Rule 9(b)'s particularity
requirement.
The only allegations contained in the
complaint that approach compliance with Rule 9 concern
allegedly false representations made by Hogget, however,
the complaint does not contain sufficient factual
allegations to permit Hogget's statements to be
attributed to Defendants.

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(Doc. 17 at 5).
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Rule 9(b) applies to claims that "sound in fraud" or are
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"grounded in fraud." Kearns v. Ford Motor Co., 567 F.3d 1120, 1125
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(9th Cir. 2009).

Plaintiffs’ claim for deceit is indisputably

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subject to Rule 9(b), as it is based on an allegation of actual
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fraud.

The

elements

of

a

California

fraud

claim

are:

(1)

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misrepresentation

(false

representation,

concealment

or

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nondisclosure); (2) knowledge of the falsity (or "scienter"); (3)
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intent to defraud, i.e., to induce reliance; (4) justifiable
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reliance; and (5) resulting damage. Lazar v. Superior Court, 12
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Cal.4th 631, 638 (Cal. 1996).

The memorandum decision dismissing

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Plaintiffs’ original complaint advised Plaintiffs that allegations
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of fraud must include the "time, place, and specific content of the
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false representations as well as the identities of the parties to

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the misrepresentations."

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individual identified in the FAC who made false statements is

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Hoggett.

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misrepresentations: 1) Hoggett “informed Plaintiffs that he would

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get the ‘best possible’ loan for them;” and 2) “Hoggett, submitted

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a loan application to First Franklin containing information both

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knew was false.”

The

FAC

E.g., Swartz, 476 F.3d at 764.

alleges

Hoggett

made

the

The only

following

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Hoggett’s statement that he would get Plaintiffs “the best

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loan possible,” is not an actionable misrepresentation as currently

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pled.

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representations

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misrepresentation cause of action.

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Cal. App. 4th 816, 835 (Cal. Ct. App. 2004); see also Vega v.

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Jones, Day, Reavis & Pogue, 121 Cal. App. 4th 282, 291 (Cal. Ct.

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App. 2004) (citation omitted) (“While expressions of professional

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opinion are sometimes treated as representations of fact, a ‘casual

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expression of belief’ is not similarly treated”).

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alleged statement about which loan would be “best” for Plaintiffs

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constitutes a representation of subjective value, an opinion, not

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a fact.

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App. 4th 303, 308 (Cal. Ct. App. 2003) (“Representations of value

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are opinions.”).

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opinion is actionable, Plaintiffs do not plead justifiable reliance

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on Hoggett’s statement or damages resulting from such reliance.

Expressions
of

of

opinion

fact,

and

are
thus

not
are

generally
not

treated

grounds

as

for

a

E.g., Gentry v. Ebay, Inc., 99

Hoggett’s

See Neu-Visions Sports v. Soren/McAdam/Bartells, 86 Cal.

Even assuming arguendo Hoggett’s statement of

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As to the “false information” submitted in Plaintiffs’ loan

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application, Plaintiffs do not identify what information was false

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that Plaintiffs justifiably relied on or how Plaintiffs were
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harmed. Nor are their facts alleged in the complaint sufficient to

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raise an inference that Defendants intended to induce Plaintiffs to

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accept the subject loan by making the alleged false statements

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contained in the loan application.

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who willfully deceives another with intent to induce him to alter

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his position to his injury or risk, is liable for any damage which

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he thereby suffers”).

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deficient, analysis of Defendants’ statute of limitations and

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agency arguments is unnecessary. Plaintiffs’ first cause of action

See Cal. Civ. Code § 1709 (“One

As the complaint continues to be factually

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is DISMISSED, with prejudice.

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B. Third Cause of Action: Negligence

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The third cause of action asserts negligence against First

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Franklin

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demonstrated that the defendant owed a duty to the plaintiff, that

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the defendant breached that duty, and that the breach proximately

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caused

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Childcare Centers, Inc., 32 Cal. 4th 1138, 1145 (2004).

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previously noted in the dismissal of the negligence claim in

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Plaintiffs’ original complaint, a financial institution generally

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owes

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involvement in the loan transaction does not exceed the scope of

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its conventional role as a mere lender of money.

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Heart Fed. Savings & Loan Assn., 231 Cal. App. 3d 1089, 1096 (Cal.

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Ct. App. 1991).

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no

and

the

Loan

Review.

plaintiff's

duty

of

care

To

prove

injuries.

to

a

negligence,

E.g.

borrower

Wiener

when

the

it

v.

must

be

Southcoast
As

institution's

E.g. Nymark v.

Plaintiffs allege that Defendants acted beyond the role of a

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traditional lender by committing various wrongful acts.

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arguendo that Plaintiffs’ allegations are sufficient to establish

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that Defendants owed Plaintiffs a duty of care and breached such
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Assuming

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duty,

the

complaint

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proximately

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references the “possibility of the loss of [Plaintiffs’] family

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residence,”

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actuated.

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establish how Defendants caused Plaintiffs any damages.

caused

As

the

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Defendants’

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unnecessary.

to

allege

Plaintiffs

however,

The

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fails

this

complaint

statute

is

of

not

factually

third

future

allege

limitations

Plaintiff’s

Defendants’

damages.

speculative

does

complaint

any

that

cause

The

complaint

injury

facts

not
to

action

analysis

of

arguments

agency

of

was

sufficient

deficient,
and

breach

is

is

DISMISSED,

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without prejudice.

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C. Fifth Cause of Action: California’s Unfair Competition Law

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Plaintiffs’

fifth

action

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decision dismissing the UCL claim pled in Plaintiffs’ original

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complaint provides:

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Law

§

(“UCL”).

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The

et

under

California’s

Competition

Code

claims

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Professions

asserts

California

Unfair

and

of

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Business

cause

seq.,

memorandum

The fifth cause of action asserted in the complaint is
for violation of California’s Unfair Competition Law
(UCL).
Plaintiffs’ opposition asserts the following
basis for the UCL claim: (1) Defendants violated the law
by acting negligently, breaching their fiduciary duty,
and engaging in fraud; (2) Defendants’ agent, Hoggett,
engaged in a scheme designed to deceive the public by
assuring borrowers that the loans he was extending were
the “best available on the market.” (Opposition at 11).
The complaint does not contain the factual allegations
necessary to sustain any of the purported bases for
Plaintiffs UCL claim.

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(Doc. 17 at 9).

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Plaintiffs’

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allegation of fraud, however, the FAC does not properly allege a

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claim for fraud for the reasons set forth above. Plaintiffs’

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negligence claim is also insufficient to support a UCL claim, as

UCL

The FAC suffers from the same deficiency.
claim

is

predicated

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in

part

on

Plaintiffs’

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the complaint does not allege damages proximately caused by any of

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the Defendants actions. Under the UCL, standing extends only to “a

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person who has suffered injury in fact and has lost money or

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property as a result of the unfair competition.”

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Corp. v. Superior Court, 51 Cal. 4th 310, 322 (Cal. 2011) (citation

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omitted).

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D. Remaining Claims

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E.g., Kwikset

Plaintiffs’ remaining causes of action for civil conspiracy

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and declaratory relief do not provide independent basis for relief.

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Both causes of action are derivative of Plaintiffs’ underlying

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substantive claims, none of which remain.

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E. Remand

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The FAC does not assert any federal claims, and Plaintiffs

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made no attempt to amend the deficient federal claims pled in the

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original complaint. As there are no federal claims remaining in

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this action, remand is appropriate under 28 U.S.C. § 1367, as there

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is no federal interest to justify the intervention of a federal

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court.
ORDER

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For reasons stated, IT IS ORDERED:

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1) Plaintiffs’ complaint is DISMISSED in its entirety, without

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prejudice;

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2) Defendants’ Motion to Strike (Doc. 22) is MOOT;

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3) Plaintiffs’ action is REMANDED to the State Court, and

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4) Defendants shall submit a form of order consistent with

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this

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electronic service of this decision.

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Memorandum

Decision

within

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five

(5)

days

following

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IT IS SO ORDERED.

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Dated:
hkh80h

April 19, 2011

/s/ Oliver W. Wanger
UNITED STATES DISTRICT JUDGE

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