Newhouse et al v. Aurora Bank FSB

Filing 108

ORDER signed by Judge Kimberly J. Mueller on 6/5/2013 ORDERING that defendants' 86 motion to dismiss plaintiffs' second amended complaint is GRANTED with prejudice. This case is CLOSED. (Zignago, K.)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT COURT OF CALIFORNIA

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MICHELLE NEWHOUSE, et al.,

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Plaintiffs,

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vs.
AURORA BANK FSB, et al.,

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No. 2:12-cv-00223-KJM-KJN

Defendants.

ORDER

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This matter is before the court on the motion of defendants Aurora Bank FSB

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(“Aurora”) and Aurora Loan Services, LLC (“ALS”) (collectively, “defendants”) to dismiss

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plaintiffs’ second amended complaint (“SAC”) under Federal Rule of Civil Procedure 12(b)(6).

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The court decided this motion without a hearing. For the reasons set forth below, defendants’

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motion is GRANTED.

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I.

BACKGROUND

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This is a mass-joinder action involving twenty-four plaintiffs alleging that

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defendants, involved in the origination and servicing of plaintiffs’ residential mortgages,

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deceived them as to the nature of the mortgagor-mortgagee relationship they were entering at

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the time of origination. Plaintiffs filed their original complaint in California State Superior

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Court for the County of Sacramento. (See Notice of Removal (“NOR”), Ex. 1, ECF 1.)
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Defendants timely removed to this court in accordance with 28 U.S.C. § 1441(b), based on

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diversity of citizenship under 28 U.S.C. § 1332. (Id.) On February 23, 2012, plaintiffs filed

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their first amended complaint (“FAC”) as a matter of course in accordance with Federal Rule of

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Civil Procedure 15(a)(1)(B).

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Defendant Aurora is a federal savings bank (“FSB”) governed by the Home

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Owners Loan Act of 1933 (“HOLA”). The gravamen of plaintiffs’ amended complaint is that

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defendants duped plaintiffs into believing they were entering a traditional, arms-length, lender-

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borrower relationship, when in fact their loans were immediately bundled, packaged and sold to

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investors. Plaintiffs argue defendants convinced plaintiffs to enter into risky loans defendants

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knew they could not afford, and then dragged their feet when plaintiffs attempted to modify

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their loans in order to obtain higher servicing fees for conducting foreclosure proceedings.

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On January 8, 2013, the court granted defendants’ motion to dismiss, dismissing

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all claims with prejudice save plaintiffs’ negligent servicing claim, which the court construed as

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a misrepresentation claim. (ECF 75 at 12–14.) The court dismissed this claim with leave to

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amend to comply with Federal Rule of Civil Procedure Rule 9(b). (ECF 75.)

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On February 8, 2013, plaintiffs filed their second amended complaint (“SAC”),

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re-alleging their negligence claim. (ECF 81.) Defendants moved to dismiss on February 21,

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2013. (ECF 86.) Numerous plaintiffs filed for voluntary dismissal, and the remaining

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plaintiffs have not responded to the motion to dismiss. (ECF 90–95, 98, 100–101.)

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II.

STANDARD

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Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move

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to dismiss a complaint for “failure to state a claim upon which relief can be granted.” A court

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may dismiss “based on the lack of cognizable legal theory or the absence of sufficient facts

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alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699

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(9th Cir. 1990).

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Although a complaint need contain only “a short and plain statement of the

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claim showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), in order to survive a

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motion to dismiss this short and plain statement “must contain sufficient factual matter . . . to
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‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678

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(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must

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include something more than “an unadorned, the-defendant-unlawfully-harmed-me accusation”

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or “‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of

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action . . . .’” Id. (quoting Twombly, 550 U.S. at 555). Determining whether a complaint will

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survive a motion to dismiss for failure to state a claim is a “context-specific task that requires

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the reviewing court to draw on its judicial experience and common sense.” Id. at 679.

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Ultimately, the inquiry focuses on the interplay between the factual allegations of the complaint

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and the dispositive issues of law in the action. See Hishon v. King & Spalding, 467 U.S. 69, 73

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(1984).
In making this context-specific evaluation, this court “must presume all factual

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allegations of the complaint to be true and draw all reasonable inferences in favor of the

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nonmoving party.” Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). This rule

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does not apply to “‘a legal conclusion couched as a factual allegation,’” Papasan v. Allain, 478

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U.S. 265, 286 (1986), quoted in Twombly, 550 U.S. at 555, nor to “allegations that contradict

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matters properly subject to judicial notice,” or to material attached to or incorporated by

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reference into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.

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2001). A court’s consideration of documents attached to a complaint or incorporated by

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reference or matter of judicial notice will not convert a motion to dismiss into a motion for

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summary judgment. United States v. Ritchie, 342 F.3d 903, 907–08 (9th Cir. 2003).

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Under Rule 9(b) of the Federal Rules of Civil Procedure, a plaintiff who alleges

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fraud “must state with particularity the circumstances constituting the fraud,” but may describe

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generally the state of mind animating the fraud. The pleading must "‘be specific enough to give

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defendants notice of the particular misconduct . . . so that they can defend against the charge

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and not just deny that they have done anything wrong.'" Sanford v. Memberworks, Inc., 625

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F.3d 550, 558 (9th Cir. 2010) (quoting Kearns v. Ford Motor Co., 567 F.3d. 1120, 1124 (9th

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Cir. 2009)). To avoid dismissal, the complaint must describe the time, place, and specific

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content of the false representations and identify the parties to the misrepresentations. Id.;
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Dooms v. Fed. Home Loan Mortg. Corp., No. CV F 11-0352 LJO DLF, 2011 WL 1232989, at

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*14 (E.D. Cal. Mar. 31, 2011).

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III.

ANALYSIS

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Defendants argue numerous bases for dismissal, including the economic loss

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doctrine, the statute of limitations, defects in the allegations of specific plaintiffs and lack of

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standing. (ECF 86 at 6–12.) However, because plaintiffs did not comply with this court’s

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previous order of January 8, 2013, which directed plaintiffs to allege fraud with the required

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specificity, the court addresses only that basis for dismissal.

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In their newly-amended complaint, plaintiffs primarily specify how defendants

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mishandled the loan modification process. (ECF 81 ¶¶ 81–88.) As the court previously noted,

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claims based upon these facts are preempted because they expressly attack the servicing of the

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loan. (ECF 75 at 11; 12 C.F.R. ¶ 560.2(10).) The balance of plaintiffs’ amended pleading is

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too general to comply with Rule 9(b)’s particularity requirement.

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Under California law, the elements of misrepresentation are: “(1) the

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misrepresentation of a past or existing material fact, (2) without reasonable ground for

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believing it to be true, (3) with intent to induce another's reliance on the fact misrepresented,

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(4) justifiable reliance on the misrepresentation, and (5) resulting damage.” Apollo Capital

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Fund, LLC v. Roth Capital Partners, LLC, 158 Cal. App. 4th 226, 243 (2007). Although state

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law controls the substantive elements of plaintiffs’ claim for misrepresentation, plaintiff “must

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still meet the federal standard to plead [misrepresentation] with particularity.” Sato v.

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Wachovia Mortg., FSB, No. 5:11–cv–00810 EJD (PSG), 2011 WL 2784567, at *9 (N.D. Cal.,

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July 13, 2011) (citing Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009)); see

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also Meridian Project Sys., Inc. v. Hardin Const. Co., LLC, 404 F. Supp. 2d 1214, 1219 (E.D.

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Cal. 2005) (“It is well-settled in the Ninth Circuit that misrepresentation claims are a species of

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fraud, which must meet Rule 9(b)'s particularity requirement.”). No portion of the amended

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complaint can be read to provide any meaningful detail linked to the state law elements.

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At best, the allegations are that persons in defendants’ employ advised
plaintiffs they had to default for purposes of modification. (See, e.g., ECF 81 ¶ 97.) Plaintiffs’
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“vague and conclusory allegations . . . lack the ‘who, what, when, where, and how’ required by

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[Federal Rule of Civil Procedure] 9(b).” Id. at *8 (citing Kearns, 567 F.3d at 1125) (dismissing

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the plaintiff’s claims for intentional and negligent misrepresentation predicated on allegations

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that defendant “misrepresented to [plaintiff] that she had to default on her mortgage payments

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in order to qualify for a loan modification”).

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As the court previously dismissed this claim on this same basis and plaintiffs

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have not opposed the motion to dismiss, further amendment would be futile. Ascon Props., Inc.

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v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989).

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IV.

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CONCLUSION
For the reasons stated above, defendants’ motion to dismiss plaintiffs’ second

amended complaint is granted with prejudice. This case is CLOSED.
IT IS SO ORDERED.
DATED: June 5, 2013.

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UNITED STATES DISTRICT JUDGE

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