Dumas v. First Northern Bank et al

Filing 59

ORDER signed by Judge Lawrence K. Karlton on 10/14/11 ORDERING that Defendant Paramount's 34 Motion to Dismiss is GRANTED in part and DENIED in part. Defendants Chase and MERS 32 Motion to Dismiss the Complaint, is GRANTED in part and DENIED in part. Plaintiff's claims 1 (fraud), 2 (fraudconspiracy), 3 (negligence), 4 (Unfair Competition), 6(TILA), and 7 (RESPA) against the moving defendants are DISMISSED WITHOUT PREJUDICE. Plaintiff is GRANTED leave to amend his complaint. Plaintiff SHALL file an amended complaint within 21 days of the issuance of this order. (Kastilahn, A)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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THOMAS STEVENS DUMAS,
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NO. CIV. S-10-1523 LKK/DAD
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12

Plaintiff,
v.
O R D E R

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FIRST NORTHERN BANK, dba
FIRST NORTHERN, et al.,

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15
16

Defendants.
/

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In this foreclosure case, plaintiff filed a complaint alleging

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fraud, civil conspiracy, negligence, violation of Business and

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Professions Code §17200 et seq., violation of Civil Code § 2923.5,

20

violation of 15 U.S.C. § 1601 et seq., and violation of 15 U.S.C.

21

§ 2601 et seq. Plaintiff seeks declaratory and injunctive relief

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and damages. Pending before the court are two motions to dismiss.

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One is by defendants JP Morgan Chase (“Chase”) and Mortgage

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Electronic Registration System (“MERS”), and one is by Paramount

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Residential Mortgage Group (“Paramount”). For the reasons stated

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herein, the defendants’ motions are GRANTED in part. Plaintiff is
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GRANTED leave to amend his complaint for some claims, as specified

2

below.
I.

3

BACKGROUND1

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Some time before June, 2008, plaintiff applied for a loan for

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a property located at 2388 Clubhouse Drive in Rocklin, California.

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Plaintiff applied for the loan through Mr. Acuna, an employee of

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defendant J&J Lending. During the application process, plaintiff

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was told by Acuna that the monthly payment amount would be $4000.

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The lender used a “Stated Income” process for loan approval, which

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did not require any independent verification of plaintiff’s income

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or his ability to make the loan payments. FAC ¶57, 63. The loan

12

application stated that the loan would be an adjustable rate

13

mortgage (“ARM”), and that the interest rate was to be fixed at

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6.875% for five years, and then increase to a rate of up to

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11.875%. FAC ¶ 51. On or about June, 2008 plaintiff went to Mr.

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Acuna’s office to sign the loan papers. Once there, plaintiff

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learned that the monthly payments on the loan would be $4949. When

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plaintiff expressed concern to Mr. Acuna, Mr. Acuna told plaintiff

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that the amount could be adjusted by refinancing the property at

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a later date and at a lower interest rate. Plaintiff was “rushed”

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when signing the loan document and was provided no time to review

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the documents. FAC ¶ 64. Plaintiff did not understand the loan

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1

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Unless otherwise noted, this statement is taken from the
allegations of the First Amended Complaint (“FAC”), ECF No. 29.
Plaintiff’s allegations are taken as true for the purpose of this
motion. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

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2

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documents. FAC ¶ 65. Plaintiff signed the loan documents, and

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obtained a loan in the amount of $685,000 from defendant Paramount.

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FAC ¶ 31, 58.

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During the transaction, plaintiff paid $15,698 in fees to J&J

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and $19,727 in fees to Paramount. FAC ¶ 54. At some point, Chase

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obtained an interest in the loan. Plaintiff has received a notice

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of default on the subject loan.

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Plaintiff filed a complaint in this action on May 5, 2010 in

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state court, and defendants had the action removed to this court

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on June 17, 2010. In the operative FAC, plaintiff alleges seven

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causes of action, and seeks damages and declaratory and injunctive

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relief. He alleges fraud, civil conspiracy to defraud, negligence,

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violation of California Business and Professions Code § 17200,

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violation of California Civil Code § 2923.5, violation of the Truth

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in Lending Act, and violation of the Real Estate Settlement

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Procedures Act.

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Plaintiff received a notice that his home was scheduled for

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foreclosure sale on February 16, 2011. Plaintiff filed a motion for

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a preliminary injunction, arguing that defendants had not complied

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with Cal. Civ. Code § 2329.5, which requires a party who wishes to

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file a notice of default to contact or attempt to contact the

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borrower to explore alternatives to foreclosure. On February 15,

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2011

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injunction, and enjoined the defendants from foreclosing on the

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subject property until further order from the court. Order, ECF No.

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52. The order also stated that if defendant wished to have the

this

court

granted

plaintiff’s

3

requested

preliminary

1

preliminary injunction terminated, it should “file a declaration

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with this court stating that it has complied with the statute and

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describing the manner in which it has contacted or attempted to

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contact plaintiff.” Id. Defendants have not filed a such a motion.

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6

I.

Standards for a Motion to Dismiss

A. Dismissal of claims governed by Fed. R. Civ. P. 8(a)

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A Fed. R. Civ. P. 12(b)(6) motion challenges a complaint's

8

compliance with the pleading requirements provided by the Federal

9

Rules. In general, these requirements are established by Fed. R.

10

Civ. P. 8, although claims that “sound[] in” fraud or mistake must

11

meet the requirements provided by Fed. R. Civ. P. 9(b). Vess v.

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Ciba-Geigy Corp., 317 F.3d 1097, 1103-04 (9th Cir. 2003).

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Under Federal Rule of Civil Procedure 8(a)(2), a pleading must

14

contain a “short and plain statement of the claim showing that the

15

pleader is entitled to relief.” The complaint must give defendant

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“fair notice of what the claim is and the grounds upon which it

17

rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)

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(internal quotation and modification omitted).

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To meet this requirement, the complaint must be supported by

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factual allegations. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950

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(2009). “While legal conclusions can provide the framework of a

22

complaint,” neither legal conclusions nor conclusory statements are

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themselves sufficient, and such statements are not entitled to a

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presumption of truth. Id. at 1949-50. Iqbal and Twombly therefore

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prescribe a two step process for evaluation of motions to dismiss.

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The court first identifies the non-conclusory factual allegations,
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1

and the court then determines whether these allegations, taken as

2

true and construed in the light most favorable to the plaintiff,

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“plausibly give rise to an entitlement to relief.” Id.; Erickson

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v. Pardus, 551 U.S. 89 (2007).2

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“Plausibility,” as it is used in Twombly and Iqbal, does not

6

refer to the likelihood that a pleader will succeed in proving the

7

allegations. Instead, it refers to whether the non-conclusory

8

factual allegations, when assumed to be true, “allow[] the court

9

to draw the reasonable inference that the defendant is liable for

10

the

misconduct

alleged.”

Iqbal,

129

S.Ct.

at

1949.

“The

11

plausibility standard is not akin to a 'probability requirement,'

12

but it asks for more than a sheer possibility that a defendant has

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acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 557). A

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complaint may fail to show a right to relief either by lacking a

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cognizable legal theory or by lacking sufficient facts alleged

16

under a cognizable legal theory. Balistreri v. Pacifica Police

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Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

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The line between non-conclusory and conclusory allegations is

19

not always clear. Rule 8 “does not require 'detailed factual

20

allegations,' but it demands more than an unadorned, the-defendant-

21

unlawfully-harmed-me

accusation.”

Iqbal,

129

S.

Ct.

at

1949

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2

As discussed below, the court may consider certain limited
evidence on a motion to dismiss. As an exception to the general
rule that non-conclusory factual allegations must be accepted as
true on a motion to dismiss, the court need not accept allegations
as true when they are contradicted by this evidence. See Mullis v.
United States Bankr. Ct., 828 F.2d 1385, 1388 (9th Cir. 1987),
Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir. 1987).
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(quoting Twombly, 550 U.S. at 555). While Twombly was not the first

2

case that directed the district courts to disregard “conclusory”

3

allegations, the court turns to Iqbal and Twombly for indications

4

of the Supreme Court’s current understanding of the term. In

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Twombly, the Court found the naked allegation that “defendants

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'ha[d] entered into a contract, combination or conspiracy to

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prevent competitive entry . . . and ha[d] agreed not to compete

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with one another,'” absent any supporting allegation of underlying

9

details, to be a conclusory statement of the elements of an anti-

10

trust claim. Id. at 1950 (quoting Twombly, 550 U.S. at 551). In

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contrast, the Twombly plaintiffs’ allegations of “parallel conduct”

12

were not conclusory, because plaintiffs had alleged specific acts

13

argued to constitute parallel conduct. Twombly, 550 U.S. at 550-51,

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556.

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Twombly also illustrated the second, “plausibility” step of

16

the analysis by providing an example of a complaint that failed and

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a complaint that satisfied this step. The complaint at issue in

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Twombly failed. While the Twombly plaintiffs’ allegations regarding

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parallel conduct were non-conclusory, they failed to support a

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plausible claim. Id. at 566. Because parallel conduct was said to

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be ordinarily expected to arise without a prohibited agreement, an

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allegation of parallel conduct was insufficient to support the

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inference that a prohibited agreement existed. Id. Absent such an

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agreement, plaintiffs were not entitled to relief. Id.3

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This judge must confess that it does not appear self-evident
that parallel conduct is to be expected in all circumstances and
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1

In

contrast,

Twombly

held

that

the

model

pleading

for

2

negligence demonstrated the type of pleading that satisfies Rule

3

8. Id. at 565 n.10. This form provides “On June 1, 1936, in a

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public highway called Boylston Street in Boston, Massachusetts,

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defendant negligently drove a motor vehicle against plaintiff who

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was then crossing said highway.” Form 9, Complaint for Negligence,

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Forms App., Fed. Rules Civ. Proc., 28 U.S.C. App., p 829. These

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allegations adequately “'state[] . . . circumstances, occurrences,

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and events in support of the claim presented.'” Twombly, 550 U.S.

10

at 556 n.3 (quoting 5 C. Wright & A. Miller, Federal Practice and

11

Procedure § 1216, at 94, 95 (3d ed. 2004)). The factual allegations

12

that defendant drove at a certain time and hit plaintiff render

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plausible the conclusion that defendant drove negligently.

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B. Dismissal of Claims Governed by Fed. R. Civ. P. 9(b)

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A Rule 12(b)(6) motion to dismiss may also challenge a

16

complaint’s compliance with Fed. R. Civ. P. 9(b).

See Vess, 317

17

F.3d at 1107.

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mistake, a party must state with particularity the circumstances

19

constituting fraud or mistake. Malice intent, knowledge, and other

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conditions of a person’s mind may be alleged generally.”

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circumstances 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.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th

This rule provides that “In alleging fraud or

These

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thus would seem to require evidence. Of course, the Supreme Court
has spoken and thus this court's own uncertainty needs only be
noted, but cannot form the basis of a ruling.
7

1

Cir. 2007) (quoting Edwards v. Marin Park, Inc., 356 F.3d 1058,

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1066 (9th Cir. 2004)). “In the context of a fraud suit involving

3

multiple defendants, a plaintiff must, at a minimum, ‘identif[y]

4

the role of [each] defendant [] in the alleged fraudulent scheme.’”

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Id. At 765 (quoting Moore v. Kayport Package Express, 885 F.2d 531,

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541 (9th Cir. 1989)).

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satisfy the ordinary requirements of Rule 8.

Claims subject to Rule 9(b) must also

III. Analysis

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9

Pending before the court are two motions to dismiss. One is

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by defendant Paramount Mortgage, and the other is by defendants JP

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Morgan Chase and Mortgage Electronic Registration System. Both

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motions seek to dismiss all claims in the FAC.

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A. Fraud

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Plaintiff

pleads

his

fraud

cause

of

action

against

all

15

defendants under California Civil Code § 1572. FAC ¶ 78. That

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provision defines fraud in the formation of a contract, and

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provides:

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“Actual fraud. . . consists in any of the following
acts, committed by a party to the contract or with
his connivance, with intent to deceive another
party thereto, or to induce him to enter into the
contract: (1) the suggestion, as a fact, of that
which is not true, by one who does not believe it
to be true; (2) the positive assertion, in a manner
not warranted by the information of the person
making it, of that which is not true, though he
believes it to be true; (3) the suppression of that
which is true, by one having knowledge or belief of
the fact; (4) a promise made without any intention
of performing it; or (5) any other act fitted to
deceive.”

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Although plaintiff asserts that his fraud claim arises under
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§ 15724, he also appears to claim that the defendants engaged in

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fraud during the foreclosure process. Since § 1572 defines fraud

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in the context of contract formation, and is inapplicable to any

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representations made during the foreclosure process, the court will

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also analyze whether the FAC adequately states a claim for the

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California common law tort of fraud. The elements of a fraud claim

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under

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representation, concealment or nondisclosure), (2) knowledge of

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falsity,

California

(3)

law

intent

are

to

(1)

defraud

misrepresentation

(to

induce

(a

false

reliance),

(4)

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justifiable reliance, and (5) resulting damage. Agosta v. Astor,

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120 Cal. App. 4th 596, 603 (2004).

12

Federal courts adjudicating state law claims apply state

13

substantive law, Erie R.R. v. Tompkins, 304 U.S. 64, 78 (1938), but

14

federal procedural rules, Vess v. Ciba-Geigy Corp. USA, 317 F.3d

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1097, 1102 (9th Cir. 2003).5 Here, the elements of plaintiff’s

16

fraud claim are defined in California law, but the applicable

17

pleading standard comes from Fed. R. Civ. P. 9(b), as discussed

18

above.

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defendants, a plaintiff must, at a minimum, ‘identif[y] the role

20

of [each] defendant [] in the alleged fraudulent scheme.’”

“In

the

context

of

a

fraud

suit

involving

multiple

Swartz

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26

4

A complaint need not state the statute for each claim.
"Notice pleading requires the plaintiff to set forth in his
complaint claims for relief, not causes of action, statutes or
legal theories," Alvarez v. Hill, 518 F.3d 1152, 1157 (9th Cir.
2008) (emphasis in original),(9th Cir. 2008).
5

Thus, defendants’ citations to California case law regarding
the heightened pleading standard for fraud in California courts are
unavailing.
9

1

v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007) (quoting Moore v.

2

Kayport Package Express, 885 F.2d 531, 541 (9th Cir. 1989)). “For

3

corporate defendants, a plaintiff must allege the names of the

4

persons who made the allegedly fraudulent representations, their

5

authority to speak, to whom they spoke, what they said or wrote,

6

and when it was said or written.” Dipaola v. JPMorgan Chase Bank,

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2011 U.S. Dist. LEXIS 88753 (N.D. Cal. Aug. 10, 2011)(citing

8

Tarmann v. State Farm Mut. Auto Ins. Co., 2 Cal. App. 4th 153, 157

9

(1991)). See also Dorado v. Shea Homes Ltd. P’ship, 2011 U.S. Dist.

10

LEXIS 97672 (E.D. Cal. 2011); Nadan v. Homesales, Inc., 2011 U.S.

11

Dist. LEXIS 89946 (E.D. Cal. 2011); Kopchuk v. Countrywide Fin.

12

Corp., 2010 U.S. Dist. LEXIS 23884 (E.D. Cal. 2010)(dismissing a

13

claim where plaintiff “failed to allege who actually made the

14

supposedly false representations or their ability to speak for the

15

corporation. . .”). To state a fraud claim against a corporation,

16

plaintiff “must allege the names of the persons who made the

17

allegedly fraudulent representations, their authority to speak, to

18

whom they spoke, what they said or wrote, and when it was said or

19

written." Magdaleno v. IndyMac Bancorp, Inc., 2011 U.S. Dist. LEXIS

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13561 (E.D. Cal. Jan. 28, 2011)(applying, in federal court, the

21

pleading requirements from Lazar v. Superior Court, 12 Cal. 4th

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631, 645, 49 Cal. Rptr. 2d 377, 909 P.2d 981 (1996)). See also,

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Ungerleider v. Bank of Am. Corp., 2010 U.S. Dist. LEXIS 138294

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(C.D. Cal. Dec. 27, 2010); Yulaeva v. Greenpoint Mortg. Funding,

25

Inc.,

26

2010)(holding that although Lazar articulates a California pleading

2010

U.S.

Dist.

LEXIS

10

137988

(E.D.

Cal.

Dec.

20,

1

standard, “numerous district courts have followed this rule, at

2

least

3

speaker.”).

4

insofar

as

to

require

identification

of

a

particular

Plaintiff’s complaint alleges a cause of action for fraud
against

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origination of the Subject Loan and the foreclosure process for the

7

Subject Property.” FAC ¶ 79. Plaintiff states that

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10
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12
13
14

all

defendants.6

5

Plaintiff

alleges

fraud

“in

the

the aforementioned conduct of Defendants consisted of
intentional misrepresentations, deceit, and/or concealment
of material facts known to them with the intention on their
part of thereby depriving Plaintiff of property or legal
rights or otherwise causing injury. Defendants, and each of
them acted fraudulently, maliciously and oppressively with
a conscious, reckless and willful disregard, and/or with
callous disregard of the probable detrimental and economic
consequences to Plaintiff, and to the direct benefit of
Defendants, knowing Defendants’ conduct was substantially
certain to vex, annoy, and injure Plaintiff. . .”
FAC ¶ 82.

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Aside from these conclusory statements, plaintiff alleges some

16

facts that he argues support his fraud claim: that Acuna told

17

plaintiff that the $4949 monthly payment “was the best that could

18

be done,” FAC ¶ 46; that Acuna told plaintiff that “he would take

19

care of [the high monthly payment amount] later” and that “the

20

amount would be adjusted,” FAC ¶ 47; and that “Acuna informed

21

plaintiff that he could refinance the property at a later date and

22

get a better rate at that time,” FAC ¶ 48. Plaintiff further states

23

that “Defendants, and each of them failed to disclose material

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26

6

The court here only analyzes the fraud claim against the
moving defendants. J & J Lending, Acuna, and First Northern Bank
have not filed motions to dismiss the claims against them.
11

1

facts about the Subject Loan, failing to verify Plaintiff’s income,

2

falsifying Plaintiff’s income, . . ” FAC ¶ 66; and that “Defendants

3

have represented that they have the right to payment under the

4

Note. . . in fact, Defendants. . . are not the real parties in

5

interest because they are not the legal trustee, mortgageee or

6

beneficiary, nor are they authorized agents. . .” FAC ¶ 69;

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“Defendants

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representing to them that it was within their rights to conduct a

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trustee’s sale of the Subject Property.”

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CHASE

and

MERS

further

defrauded

Plaintiffs

by

i. Plaintiff’s Fraud Claim against Defendant Paramount

11

Defendant Paramount asserts that plaintiff has failed to state

12

a cause of action for fraud against it. Paramount’s Mot. to Dismiss

13

(“Paramount’s Mot.”) 4, ECF No. 34-1. The court agrees that the

14

FAC, on its face, does not meet the standard for pleading fraud

15

against defendant Paramount. Plaintiff has not alleged the time,

16

place, or content of a single misrepresentation made by Paramount.

17

Plaintiff attempts to remedy this deficiency by asserting, in his

18

opposition that Acuna is the agent of Paramount, that Acuna

19

misrepresented to plaintiff that the loan issued was the best loan

20

available, that Acuna extended credit to plaintiff without regard

21

to his ability to pay the loan, and informed plaintiff that if the

22

loan became unaffordable, he could simply refinance it with another

23

loan. Plaintiff states that Acuna knew these statements to be

24

false, and made the statements to induce plaintiff to accept the

25

////

26

////
12

1

loan offered.7

2

First, the court notes that plaintiff’s allegation that Acuna

3

extended credit to plaintiff does not satisfy even the first

4

element

5

misrepresentation because it is not a representation at all.

of

a

fraud

claim.

Extending

credit

is

not

a

6

With respect to the other two statements, plaintiff has not

7

alleged Acuna’s authority to speak for Paramount. As noted above,

8

such an allegation is required for a fraud claim against a

9

corporation. According to the FAC, Acuna was “the broker, employee,

10

and/or agent of Defendant J&J and was the broker of the Subject

11

Loan.” FAC ¶ 6. The FAC alleges that Paramount, J&J, Acuna, and the

12

Doe defendants were agents of each other. Plaintiff, however, does

13

not allege even on information and belief that Acuna had the

14

authority to speak for any of the defendants currently seeking to

15

dismiss the claims against them. Plaintiff’s opposition does not

16

provide any additional information from which the court could

17

plausibly

18

Paramount. Accordingly, the fraud claim against Paramount is

19

DISMISSED. Because the court cannot be sure that no fraud cause of

20

action against Paramount can be pled, plaintiff will be given an

21

opportunity to re-plead.

infer

that

Acuna

had

the

authority

to

speak

for

22
23
24
25
26

7

In general, the court may not consider material beyond the
pleadings in ruling on a motion to dismiss for failure to state a
claim. See, e.g., Hal Roach Studios, Inc. v. Richard Feiner & Co.,
896 F.2d 1542, 1555 n.19 (9th Cir. 1989). Thus, the allegations
that appear in plaintiff’s opposition, but not in his complaint,
are only relevant to whether it would be futile to allow plaintiff
to amend the complaint.
13

1

ii. Plaintiff’s Fraud Claim against Chase and MERS

2

Plaintiff does not allege that JP Mortgage or MERS had any

3

involvement in the origination of the subject loan. His fraud claim

4

against them, therefore, must only pertain to the foreclosure

5

process. The only allegations in the complaint that could possibly

6

support a fraud claim against Chase and MERS are that those

7

defendants “represented that they have the right to payment under

8

the Note. . .” when in fact those defendants “are not the real

9

parties in interest,” FAC ¶ 69, and that they “further defrauded

10

plaintiffs by representing to them that it was within their rights

11

to conduct a trustee’s sale of the Subject Property.” FAC ¶ 70.

12

These bare allegations are not sufficient to state a claim for

13

fraud against Chase and MERS. Plaintiff has not stated the “time,

14

place, and specific content of the false representations [nor] the

15

identities of the parties to the misrepresentations.” Swartz, 476

16

F.3d at 764. As with his claims against Paramount, plaintiff’s

17

opposition to Chase and MERS’ motion to dismiss attempts to salvage

18

his claim. ECF No. 40. In the opposition, plaintiff states that

19

Chase and MERS’ fraudulent conduct consisted of “after assuming the

20

loan, not tak[ing] steps to verify the veracity of the loan and the

21

paperwork signed by plaintiff” and not acting in good faith to

22

attempt to modify the loan.

Opp’n 3, ECF No. 40.

23

These assertions in plaintiff’s opposition do not state the

24

requisite elements to support a fraud claim against Chase or MERS.

25

Accordingly, plaintiff’s fraud claim against Chase and MERS is

26

DISMISSED. Again, because the court cannot be sure that it would
14

1

be futile to allow plaintiff to amend the complaint, the court will

2

permit re-pleading.

3

B. Civil Conspiracy to Defraud

4

Plaintiff alleges that all “defendants conspired and agreed

5

to implement a scheme to defraud and victimize plaintiff through

6

the preditory lending practices and other unlawful conduct alleged”

7

in the FAC. FAC ¶ 84. The FAC further alleges that all defendants

8

acted “pursuant to an agreement. . . to defraud plaintiff into

9

entering into the subject loan agreement and thereafter taking the

10

subject property without having any right to do so.” FAC ¶ 16.

11

In California, “conspiracy is not a cause of action, but a

12

legal doctrine that imposes liability on persons who, although not

13

actually committing a tort themselves, share with the immediate

14

tortfeasors a common plan or design in its perpetration.” Applied

15

Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503, 510

16

-511

17

connection with an actual tort. Id. Here, plaintiff alleges civil

18

conspiracy in connection with the tort of fraud. Because the court

19

has already dismissed plaintiff’s fraud claim against Paramount,

20

Chase, and MERS, there can be no conspiracy liability under the

21

present pleading against those defendants for fraud committed by

22

them.

(Cal.

1994).

Liability

for

conspiracy

only

arises

in

23

However, defendants J & J Lending and Marko Acuna have not

24

filed motions to dismiss the complaints against them, and from what

25

is before the court it appears that plaintiff could state a claim

26

against them in an amended complaint. In the FAC, plaintiff alleged
15

1

that Acuna was the agent and employee of J & J Lending, and was the

2

broker for plaintiff’s loan. Plaintiff alleges that Acuna told him

3

that the loan offered was “the best that could be done,” and that

4

Acuna induced plaintiff to sign the loan documents by telling

5

plaintiff that the monthly payment amount would be adjusted later

6

to meet plaintiff’s needs. FAC ¶ 46-47. In his opposition to

7

Paramount’s motion to dismiss, plaintiff added that Acuna knew at

8

the time that plaintiff qualified for a better loan, and also that

9

Acuna knew at the time that the monthly payment amount would not

10

be adjusted through refinance. Opp’n to Paramount’s Mot. to Dismiss

11

3:6-16. Thus, plaintiff could state a fraud claim against J&J

12

Lending and Acuna, which could serve as a predicate to a conspiracy

13

to defraud claim against the moving defendants.

14

Plaintiff, therefore, is granted leave to amend the complaint,

15

wherein he may allege, inter alia, the elements of a conspiracy to

16

defraud based on the allegedly fraudulent statements made by Acuna

17

at the time plaintiff signed the loan documents.8

18

C. Negligence

19

As his third cause of action against all defendants, plaintiff

20

alleges that the defendants owed a duty of care to plaintiff in the

21

processing of plaintiff’s loan application, and that defendants

22

breached the duty by overstating plaintiff’s income and the value

23

of the property on the loan application. FAC ¶ 96.

24

Under California law, the elements of a claim for negligence

25
8

26

Of course plaintiff must have a basis for any claim in a
future amendment.
16

1

are “(a) a legal duty to use due care; (b) a breach of such legal

2

duty; and (c) the breach as the proximate or legal cause of the

3

resulting injury.” Ladd v. County of San Mateo, 12 Cal.4th 913,

4

917, 50 Cal.Rptr.2d 309, 911 P.2d 496 (1996) (internal citations

5

and quotations omitted); see also Cal Civ Code § 1714(a). Moving

6

defendants argue that plaintiff has not adequately alleged facts

7

supporting any of these elements.

8

California courts have stated that “as a general rule, a

9

financial institution owes no duty of care to a borrower when the

10

institution's involvement in the loan transaction does not exceed

11

the scope of its conventional role as a mere lender of money.”

12

Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal.App.3d 1089

13

(1998). See also Wagner v. Benson, 101 Cal.App.3d 27, 35 (1980) (a

14

lender has no duty to ensure that borrower will use borrowed money

15

wisely).

16

The Nymark rule is limited in two ways. First, a lender may

17

owe to the borrower a duty of care sounding in negligence when the

18

lender's activities exceed those of a conventional lender. The

19

Nymark court noted that the “complaint does not allege, nor does

20

anything

21

appraisal was intended to induce plaintiff to enter into the loan

22

transaction or to assure him that his collateral was sound.” Id.

23

at 1096-97, 283 Cal.Rptr. 53. Nymark thereby implied that had such

24

an intent been present, the lender may have had a duty to exercise

25

due care in preparing the appraisal. See also Wagner v. Benson, 101

26

Cal.App.3d 27, 35, 161 Cal.Rptr. 516 (1980) (“Liability to a

in

the

summary

judgment

17

papers

indicate,

that

the

1

borrower for negligence arises only when the lender actively

2

participates in the financed enterprise beyond the domain of the

3

usual money lender.”).

4

Second, even when a lender's acts are confined to their

5

traditional scope, Nymark announced only a “general” rule. Rather

6

than conclude that no duty existed per se, the Nymark court

7

determined whether a duty existed on the facts of that case by

8

applying the six-factor test established by the California Supreme

9

Court in Biakanja v. Irving, 49 Cal.2d 647, 320 P.2d 16 (1958).

10

Nymark, 231 Cal.App.3d at 1098, 283 Cal.Rptr. 53; see also Glenn

11

K. Jackson Inc. v. Roe, 273 F.3d 1192, 1197 (9th Cir. 2001). This

12

test balances six non-exhaustive factors:

13

[1] the extent to which the transaction was intended to

14

affect the plaintiff, [2] the foreseeability of harm to

15

him, [3] the degree of certainty that the plaintiff

16

suffered injury, [4] the closeness of the connection

17

between the defendant's conduct and the injury suffered,

18

[5] the moral blame attached to the defendant's conduct,

19

and [6] the policy of preventing future harm.

20

Roe, 273 F.3d at 1197 (quoting Biakanja, 49 Cal.2d at 650, 320 P.2d

21

16) (modification in Roe ). Nymark held that this test determines

22

“whether

23

borrower-client,” 231 Cal.App.3d at 1098, 283 Cal.Rptr. 53.

a

financial

institution

owes

a

duty

of

care

to

a

24

Consistent with these principles, Wanger held that as a matter

25

of law a lender “owes no duty of care to the [borrower] in

26

approving [a] loan.” 101 Cal. App. 3d at 35. In that case, the
18

1

California Court of Appeal held that the lender did not owe a duty

2

in negligence not to place borrowers in a loan even where there was

3

a foreseeable risk borrowers would be unable to repay. Id. The

4

court explained that approving and providing a loan is within the

5

scope of activities conventionally performed by a lender.

6

it is true that approving and providing loans is a conventional

7

task for lenders, doing so knowing the borrower will be made to

8

perform would not appear to be a conventional practice.

While

9

On the other hand, a failure to discover that the loan

10

application inaccurately stated the borrower’s income, may be

11

insufficient without more to demonstrate negligence.

12

Given the vagueness of the pleading, plaintiff’s negligence

13

cause of action against the moving defendants is DISMISSED with

14

leave to amend.

15

D. Unfair Competition

16

California’s Unfair Competition Law, Cal. Bus. & Prof. Code

17

§ 17200, (“UCL”) proscribes

18

business acts and practices.” Plaintiff makes the bare assertion

19

that “defendants acts, as alleged herein, constitute unlawful,

20

unfair

21

Business and Professions Code § 17200 et. seq.” FAC ¶ 102. This

22

conclusory allegation merely states the elements of a UCL claim,

23

and invites the defendants and the court to scour the remainder of

24

the complaint to determine which, if any, of the allegations

25

incorporated by reference provide notice of the basis for this

26

claim.

and/or

fraudulent

“unlawful, unfair, or fraudulent

practices

19

as

defined

by

California

1

As discussed above, plaintiff may amend his complaint to

2

adequately state a claim for fraud against J&J Lending and Acuna,

3

and other defendants may be held liable for that fraud under a

4

conspiracy theory. Additionally, plaintiff may amend his complaint

5

to adequately state a TILA claim against Paramount and Chase (see

6

below). Such claims, if adequately pled, may serve as a predicate

7

for plaintiff’s UCL claim. Finally, plaintiff has stated a claim

8

for violation of California Civil Code § 2923.5 (see below). This

9

claim

may

serve

as

a

predicate

for

plaintiff’s

UCL

claim.

10

Accordingly, the motions to dismiss plaintiff’s UCL claim are

11

DENIED.

12

E. California Civil Code § 2923.5

13

A notice of default of the subject loan was filed on October

14

27, 2009. Plaintiff alleges that he was never contacted by the

15

defendants in order to explore alternatives to foreclosure, as

16

required by Cal. Civ. Code § 2923.5. Plaintiff alleges that Chase

17

and MERS violated § 2923.5. On February 15, 2011, this court

18

granted a preliminary injunction to plaintiff on this issue, with

19

instructions to the defendant to file a declaration, upon complying

20

with § 2923.5 stating that it had done so. Defendants have not

21

filed a declaration stating compliance with § 2923.5.

22

A mortgagee, trustee, beneficiary, or authorized agent who

23

wishes to file a notice of default must “contact the borrower in

24

person or by telephone in order to assess the borrower’s financial

25

situation

26

foreclosure,” at least thirty days before filing a default notice.

and

explore

options

20

for

the

borrower

to

avoid

1

Cal. Civ. Code § 2923.5(a). A notice of default may be filed

2

without prior contact if there was due diligence to contact the

3

borrower by mail, telephone, or other means specified in the

4

statute. Cal Civ. Code 2923.5(g). The remedy for violation of this

5

statute is postponement of the scheduled foreclosure until there

6

is compliance by the foreclosing party. Mabry v. Superior Court,

7

185 Cal.App.4th (2010)(review denied). See also Magdaleno v.

8

Indymac

9

2011)(Damrell).

Bancorp,

Inc.,

No.

Civ.

S-10-2148

(E.D.

Cal.

10

In this case, plaintiff asserts that he was never contacted

11

by the defendants prior to the Notice of Default. Defendant Chase

12

Chase argues that plaintiff fails to state a claim under § 2923.5

13

because plaintiff did not specifically allege that the lender did

14

not practice due diligence in trying to contact the borrower.

15

However, the court concludes that the FAC is adequate under the

16

notice pleading requirements that govern this cause of action. Fed.

17

R. Civ. P. 8.

18

Accordingly,

the

motion

by

Chase

and

MERS

to

19

plaintiff’s claim for violation of § 2923.5 is DENIED.

20

dismiss

E. Truth in Lending Act (“TILA”)

21

Plaintiff alleges that defendants Paramount and Chase violated

22

TILA

23

disclosures required under the law.” FAC 23. Plaintiff seeks

24

damages and rescission of the subject loan.

25
26

by

TILA

failing

to

requires

provide

creditors

plaintiff

to

make

with

accurate

certain

material

disclosures

to

borrowers when credit is secured by the borrower’s principle
21

1

dwelling. 15 U.S.C. § 1637a. The purpose of the statute is to

2

“assure a meaningful disclosure of credit terms so that the

3

consumer will be able to compare more readily the various credit

4

terms available to him and avoid the uninformed use of credit, and

5

to protect the consumer against inaccurate and unfair credit

6

billing and credit card practices.” 15 U.S.C. § 1601.

7

i. TILA Claim for Damages

8

Claims for damages under TILA are subject to a one-year

9

statute of limitations, which runs from the date of the occurrence

10

of the violation. 15 U.S.C. § 1640(e). See also Hofstetter v. Chase

11

Home Fin., LLC, 751 F. Supp. 2d 1116, 1123 (N.D. Cal. 2010)

12

(Alsup). Here, plaintiff’s TILA claim appears9 to arise solely out

13

of failure to make required disclosures at the time the loan was

14

entered, which was in June 2008. Plaintiff’s original complaint was

15

filed on May 5, 2010, outside the statute of limitations period.

16

Plaintiff’s TILA claim for damages against the moving defendants

17

is therefore DISMISSED with prejudice.

18

ii. TILA Claim for Rescission

19

Under TILA, a borrower may exercise his right to rescind a

20

loan agreement where the lender has violated TILA’s disclosure

21

requirements. 15 U.S.C. § 1635(b). That section "adopts a sequence

22

of rescission and tender that must be followed unless the court

23

orders otherwise: within twenty days of receiving a notice of

24
25
26

9

The FAC is entirely conclusory with respect to plaintiff’s
TILA claim, and plaintiff offers no arguments in opposition to the
defendants’ motions to dismiss the TILA claim.
22

1

rescission, the creditor is to return any money or property and

2

reflect termination of the security interest; when the creditor has

3

met these obligations, the borrower is to tender the property."

4

Yamamoto v. Bank of N.Y., 329 F. 3d 1167, 1170 (9th Cir. 2003). The

5

Ninth Circuit has held that rescission under TILA "should be

6

conditioned on repayment of the amounts advanced by the lender."

7

Id. (Emphasis in the original). See also Keen v. Am. Home Mortg.

8

Servicing,

9

2009)(Damrell)(dismissing a TILA claim where plaintiff failed to

10

allege any facts relating to her ability to tender the loan

11

principal.”); Garza v. Am. Home Mortgage, 2009 U.S. Dist. LEXIS

12

7448, at *5 (E.D. Cal. 2009) ("[R]escission is an empty remedy

13

without [plaintiff's] ability to pay back what she has received.");

14

Serrano v. Sec. Nat'l Mortg. Co., 2009 U.S. Dist. Lexis 71725 (S.D.

15

2009) ("If Plaintiff continues to seek rescission under TILA, he

16

must tender the owed amount or provide proof of his ability to

17

tender."); Pesayco v. World Sav., Inc., 2009 U.S. Dist. LEXIS 73299

18

(C.D. Cal. 2009) ("[A] claim for TILA rescission will only be able

19

to succeed if Plaintiff can show the ability to tender the

20

principal of the subject loan.").

21

subject to a three-year statute of limitations.

Inc.,

664

F.

Supp.

2d

1086

(E.D.

Cal.

TILA’s rescission remedy is

22

Here, plaintiff states that he is not required to plead tender

23

in any form in this complaint. FAC ¶ 31. Alternatively, plaintiff

24

contends that he “expects to be able to tender the loan proceeds

25

due within a reasonable time or as determined by the court.”

26

Following the directive of the Ninth Circuit that rescission should
23

1

not be granted absent tender of the loan proceeds by the borrower,

2

the court holds that plaintiff must plead facts from which the

3

court could infer that plaintiff will be able to tender the loan

4

amount. Plaintiff’s bare allegation that he “expects” to be able

5

to tender the amount does not suffice.

6

Moreover, the FAC’s bare assertion that defendants violated

7

TILA by failing to provide accurate disclosure materials does not

8

properly provide notice to the defendants of plaintiff’s TILA

9

claim. Although Chase and MERS have requested that the court take

10

judicial notice of various loan documents, ECF No. 33, they have

11

not argued in their motion to dismiss that the loan documents

12

contain the required TILA disclosures. Accordingly, the court

13

cannot conclude that it would be futile to allow plaintiff to amend

14

his complaint to adequately state a claim for rescission under

15

TILA. Defendants’ motions to dismiss the TILA claim for rescission

16

are GRANTED. The claim is DISMISSED without prejudce. In order to

17

state a claim for rescission, plaintiff must identify which TILA

18

disclosures were omitted or inaccurate. Plaintiff must also plead

19

facts from which the court could plausibly infer that plaintiff

20

will be able to tender the loan proceeds if the court ultimately

21

grants rescission.

22

F. Real Estate Settlement Procedures Act (“RESPA”)

23

Plaintiff’s

RESPA

allegations,

so

far

as

the

court

can

24

discern, are that “the interest and income that defendants have

25

gained. . . is disproportionate to plaintiff’s situation due

26

directly to defendants’ failure to disclose that they would gain
24

1

a financial benefit while plaintiff suffered financially as a

2

result of the subject loan”; that “the payments between the

3

Defendants were misleading and designed to create a windfall”; that

4

“defendants did not provide plaintiff with a Uniform settlement

5

statement”; that “defendants failed to provide plaintiff with a[n]

6

adequate ‘special information booklet,’ as required by law”; that

7

defendants “participated in giving and/or receiving kickbacks in

8

association with the subject loan. . . [and] in charging plaintiffs

9

unearned fees”; and that defendant assessed unlawful fees to

10

plaintiff.” FAC 27-33.

11

Defendants contend, and plaintiff nowhere disputes,10 that his

12

RESPA claims are barred by the one-year statute of limitations in

13

12 U.S.C. § 2614. Plaintiff’s RESPA claim arises from the loan

14

origination, which occurred in June or July 2008. The statute of

15

limitations,

16

Plaintiff’s

17

plaintiff’s RESPA claim is time-barred and defendants’ motions to

18

dismiss the RESPA claim is GRANTED. The claim is DISMISSED with

19

prejudice.11

20

IV. Conclusion

21

therefore,
complaint

expired
was

at

filed

the
in

latest

May

in

2010.

July

2009.

Accordingly,

For the reasons stated herein, the court ORDERS as follows:

22
10

23
24
25
26

Plaintiff does not address TILA or RESPA at all in either
of his oppositions to defendants’ filed motions to dismiss.
11

The court notes that even if not time-barred, plaintiff’s
asserted RESPA claim, as stated in the FAC, is not a “short plain
statement of the claim.” Fed. R. Civ. P. 8. For example, the court
cannot discern what plaintiff means by stating that the defendants’
income was disproportionate to plaintiff’s “situation.”
25

1

[1] Defendant Paramount’s Motion to Dismiss the

2

Complaint, ECF No. 34, is GRANTED in part and DENIED

3

in part.

4

[2] Defendants Chase and MERS Motion to Dismiss the

5

Complaint, ECF No. 32 is GRANTED in part and denied in

6

part.

7

[3] Plaintiff’s claims 1 (fraud), 2 (fraud

8

conspiracy), 3 (negligence), 4 (Unfair Competition), 6

9

(TILA), and 7 (RESPA) against the moving defendants

10

are DISMISSED WITHOUT PREJUDICE.

11

[5] Plaintiff is GRANTED leave to amend his complaint.

12

Plaintiff SHALL file an amended complaint within 21

13

(twenty-one) days of the issuance of this order.

14

IT IS SO ORDERED.

15

DATED:

October 14, 2011.

16
17
18
19
20
21
22
23
24
25
26
26