Sandry et al v. First Franklin Financial Corporation et al

Filing 38

ORDER Re Motion To Dismiss Plaintiff's First Amended Complaint By Defendants First Franklin Financial Corporation, Home Loan Services, Inc. And Mortgage Electronic Registration Systems, Inc. 22 , signed by Judge Oliver W. Wanger on 5/4/2011. REMANDING CASE to Placer County Superior Court. Copy of remand order sent Placer County Superior Court, 10820 Justice Center Drive, Roseville, CA 95678. CASE CLOSED.(Fahrney, E)

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Stuart B. Wolfe (SBN 156471)
Kimberly A. Paese (SBN 258594)
[e-mail]
WOLFE & WYMAN LLP
2175 N. California Blvd., Suite 645
Walnut Creek, California 94596-3502
Telephone: [phone]
Facsimile: [phone]

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Attorneys for Defendants
FIRST FRANKLIN FINANCIAL CORPORATION;
HOME LOAN SERVICES, INC. (sued erroneously as
“Home Loan, Inc. dba First Franklin Loan Services”); and
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.

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EASTERN DISTRICT OF CALIFORNIA

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Attorneys & Counselors At Law

UNITED STATES DISTRICT COURT

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WOLFE & WYMAN LLP

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FRESNO DIVISION

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CHAD DILLON SANDRY and MELANIE
ELIZABETH SEASHOLTZ,

Case No.: 1:10-cv-01923-OWW-SKO
Assigned to the Honorable Oliver W. Wanger

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Plaintiffs,
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ORDER RE MOTION TO DISMISS
PLAINTIFFS’ FIRST AMENDED
COMPLAINT BY DEFENDANTS FIRST
FIRST FRANKLIN FINANCIAL CORP., an
FRANKLIN FINANCIAL CORPORATION,
operational subsidiary of MLB & T Co., FSB;
HOME LOAN SERVICES, INC. AND
MORTGAGE ELECTRONIC REGISTRATION
MORTGAGE ELECTRONIC
SYSTEMS, INC.; HOME LOAN, INC., dba FIRST REGISTRATION SYSTEMS, INC.
FRANKLIN LOAN SERVICES; LOAN REVIEW
INCORPORATED; and DOES 1 through 50,
Date: February 14, 2011
inclusive,
Time: 10:00 a.m.
Ctrm: 3
Defendants.
v.

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The Motion to Dismiss by defendants FIRST FRANKLIN FINANCIAL CORPORATION,

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HOME LOAN SERVICES, INC. (sued erroneously as “Home Loan, Inc. dba First Franklin Loan

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Services"), and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. (collectively

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hereinafter as “Defendants”) the Complaint filed by Plaintiffs CHAD DILLON SANDRY and

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MELANIE ELIZABETH SEASHLOTZ (“Plaintiffs”) came on regularly for hearing on February 14,

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2011, at 10:00 a.m., in Courtroom 3 of the above-entitled Court. All appearances are noted on the

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record.

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The Court, having read and considered the moving and opposing papers filed in this matter,

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as well as the oral argument of counsel, being fully advised, and good cause appearing, finds as

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follows:

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I.

INTRODUCTION

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Plaintiffs Chad Dillon Sandry and Melanie E. Seasholtz (“Plaintiffs”) proceed with an action

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for damages and injunctive relief. On December 28, 2010, Plaintiffs filed a first amended complaint

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(“FAC”).

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Defendants First Franklin Financial Corp., Home Loan Services, Inc., and Mortgage

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Electronic Registration Systems, Inc. (“Defendants”) filed a motion to dismiss the FAC on January

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Attorneys & Counselors At Law

WOLFE & WYMAN LLP

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7, 2011. (Doc. 20). Defendants also filed a motion to strike portions of the FAC. (Doc. 22).
Plaintiffs filed opposition to Defendants’ motions on February 1, 2011. (Docs. 29, 30).
Defendants filed a reply on March 14, 2011. (Docs. 14, 15).

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II.

FACTUAL BACKGROUND

This action arises out of a loan Plaintiffs obtained for the purchase of their home in or about

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2007 (“subject loan”). Plaintiffs first met with David Hoggett (“Hoggett”), an employee of

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Loan Review. Hoggett told Plaintiff’s he would get “the best possible” loan for them. Hoggett

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submitted a loan application to First Franklin. The loan application overstated the value of the

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property by $95,000.00; Plaintiffs were not aware of this falsification. The actual value of the

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property was insufficient to qualify for the loan.

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Plaintiffs allege that First Franklin and Loan Review had an agreement in place whereby

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First Franklin would accept loans containing knowingly false information. Plaintiffs further allege

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

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for leading Plaintiff’s into a loan they did not qualify for. Loan Review told Plaintiffs that it “dealt

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directly with First Franklin and they would fund or approve the loan due to the relationship with

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First Franklin.”

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Plaintiffs allege that Defendants never explained the full terms of their loan, including but

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not limited to the interest rate, how the rate would be calculated, what the payment schedule would

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be, the risks and disadvantages of the loan, prepayment penalties, and other information. Plaintiffs
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were rushed into signing the documents. Defendants failed to disclose that the loan was designed to

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guarantee negative amortization if Plaintiffs followed the payment schedule.

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III.

LEGAL STANDARD

Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks sufficient facts to

Cir. 1990). To sufficiently state a claim to relief and survive a 12(b) (6) motion, the pleading “does

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not need detailed factual 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. Twombly, 550 U.S. 544, 555, 127 S.

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Ct. 1955, 167 L.Ed.2d 929 (2007). 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 be “enough facts to state a claim

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

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to relief that is plausible on 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 relief that is plausible on its face.”

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Ashcroft v. Iqbal, --- U.S. ----, ----, 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 light of Twombly and Iqbal, as

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follows: “In sum, for a complaint to survive a motion to dismiss, the nonconclusory factual content,

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and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the

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plaintiff to relief.” Moss v. 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 complaint is also subject to dismissal

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under Rule 12(b)(6) where it lacks a cognizable legal theory, Balistreri, 901 F.2d at 699, or where

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the allegations on their face “show that relief is barred” for some legal reason, Jones v. Bock, 549

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U.S. 199, 215, 127 S. Ct. 910, 166 L.Ed.2d 798 (2007).

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In deciding whether to grant a motion to dismiss, the court must accept as true all “well-

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pleaded factual allegations” in the 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 conclusory, unwarranted deductions

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of fact, or unreasonable 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, if a district court considers

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evidence outside the pleadings, it must normally convert the 12(b)(6) motion into a Rule 56 motion
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for summary judgment, and it must give the nonmoving party an opportunity to respond.” United

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States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). “A court may, however, consider certain

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materials-documents attached to the complaint, documents incorporated by reference in the

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complaint, or matters of judicial notice-without converting the motion to dismiss into a motion for

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summary judgment.” Id. at 908.

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IV.
A.

First Cause of Action: Deceit
Plaintiffs’ first cause of action asserts a claim under California Civil Code section 1572 for

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DISCUSSION

“deceit.” Section 1572 defines fraud, but it does not create a cause of action; rather California Civil

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Code section 1709 creates liability for fraudulent deceit. Cal. Civ. Code § 1709. The FAC’s first

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cause of action mirrors the allegations of the original complaint’s first cause of action for fraud. The

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memorandum decision dismissing the fraud claim pled in Plaintiffs’ original complaint provides in

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part:

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Federal Rule of Civil Procedure 9(b) imposes an elevated 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).
Rule 9(b) applies to claims that "sound in fraud" or are "grounded in fraud." Kearns v. Ford

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Motor Co., 567 F.3d 1120, 1125 (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 fraud. The elements of a California

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fraud claim are: (1) misrepresentation (false representation, concealment or nondisclosure); (2)

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

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memorandum decision dismissing Plaintiffs’ original complaint advised Plaintiffs that allegations

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of fraud must include the "time, place, and specific content of the false representations as well as the

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identities of the parties to the misrepresentations." E.g., Swartz, 476 F.3d at 764. The only

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individual identified in the FAC who made false statements is Hoggett. The FAC alleges Hoggett

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made the following misrepresentations: 1) Hoggett “informed Plaintiffs that he would get the ‘best

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possible’ loan for them;” and 2) “Hoggett, submitted a loan application to First Franklin containing

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information both knew was false.”

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Hoggett’s statement that he would get Plaintiffs “the best loan possible,” is not an actionable

representations of fact, and thus are not grounds for a misrepresentation cause of action. E.g.,

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Gentry v. Ebay, Inc., 99 Cal. App. 4th 816, 835 (Cal. Ct. App. 2004); see also Vega v. Jones, Day,

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Reavis & Pogue, 121 Cal. App. 4th 282, 291 (Cal. Ct. App. 2004) (citation omitted) (“While

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

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expression of belief’ is not similarly treated”). Hoggett’s alleged statement about which loan would

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be “best” for Plaintiffs constitutes a representation of subjective value, an opinion, not a fact. See

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Neu-Visions Sports v. Soren/McAdam/Bartells, 86 Cal. App. 4th 303, 308 (Cal. Ct. App. 2003)

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(“Representations of value are opinions.”). Even assuming arguendo Hoggett’s statement of opinion

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is actionable, Plaintiffs do not plead justifiable reliance on Hoggett’s statement or damages resulting

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misrepresentation as currently pled. Expressions of opinion are not generally treated as

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from such reliance.

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As to the “false information” submitted in Plaintiffs’ loan application, Plaintiffs do not

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identify what information was false that Plaintiffs justifiably relied on or how Plaintiffs were

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harmed. Nor are their facts alleged in the complaint sufficient to raise an inference that Defendants

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intended to induce Plaintiffs to accept the subject loan by making the alleged false statements

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contained in the loan application. See Cal. Civ. Code § 1709 (“One who willfully deceives another

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with intent to induce him to alter his position to his injury or risk, is liable for any damage which

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he thereby suffers”). As the complaint continues to be factually deficient, analysis of Defendants’

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statute of limitations and agency arguments is unnecessary. Plaintiffs’ first cause of action
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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 Franklin and Loan Review. To

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prove negligence, it must be 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 caused the plaintiff's injuries. E.g.

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Wiener v. Southcoast Childcare Centers, Inc., 32 Cal. 4th 1138, 1145 (2004). As previously noted

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in the dismissal of the negligence claim in Plaintiffs’ original complaint, a financial institution

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generally owes no duty of care to a borrower when the institution's involvement in the loan

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transaction does not exceed the scope of its conventional role as a mere lender of money. E.g.

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Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal. App. 3d 1089, 1096 (Cal. Ct. App. 1991).
Plaintiffs allege that Defendants acted beyond the role of a traditional lender by committing

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various wrongful acts. Assuming arguendo that Plaintiffs’ allegations are sufficient to establish

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that Defendants owed Plaintiffs a duty of care and breached such duty, the complaint fails to allege

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that Defendants’ breach proximately caused Plaintiffs any damages. The complaint references the

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“possibility of the loss of [Plaintiffs’] family residence,” however, this speculative future injury was

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not actuated. The complaint does not allege facts sufficient to establish how Defendants caused

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Plaintiffs any damages.

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As the complaint is factually deficient, analysis of Defendants’ statute of limitations and

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agency arguments is unnecessary. Plaintiff’s third cause of action is DISMISSED, without

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prejudice.

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

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Plaintiffs’ fifth cause of action asserts claims under California Business and Professions

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Code § 17200 et seq., California’s Unfair Competition Law (“UCL”). The memorandum decision

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dismissing the UCL claim pled in Plaintiffs’ original complaint provides:

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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). The FAC suffers from the same deficiency. Plaintiffs’ UCL claim is predicated in

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part on Plaintiffs’ allegation of fraud, however, the FAC does not properly allege a claim for fraud

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for the reasons set forth above. Plaintiffs’ negligence claim is also insufficient to support a UCL

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claim, as the complaint does not allege damages proximately caused by any of the Defendants

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actions. Under the UCL, standing extends only to “a person who has suffered injury in fact and has

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lost money or property as a result of the unfair competition.” E.g., Kwikset Corp. v. Superior Court,

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51 Cal. 4th 310, 322 (Cal. 2011) (citation omitted).

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D. Remaining Claims

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Plaintiffs’ remaining causes of action for civil conspiracy and declaratory relief do not

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provide independent basis for relief. 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 made no attempt to amend the

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deficient federal claims pled in the 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 is no federal interest to justify the

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intervention of a federal court.

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ORDER

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For reasons stated, IT IS ORDERED:

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

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

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3) Plaintiff’s action is REMANDED to the State Court.

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IT IS SO ORDERED.

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Dated: May 4, 2011

/s/ OLIVER W. WANGER
UNITED STATES DISTRICT COURT JUDGE

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