Rios et al v. Bank of America et al
Filing
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ORDER signed by Judge Kimberly J. Mueller on 2/12/2014 GRANTING 43 Motion to Dismiss. CASE CLOSED. (Michel, G)
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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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JOSUE RIOS and YOLANDA RIOS,
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Plaintiffs,
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No. 2:12-CV-02439-KJM-AC
v.
ORDER
BANK OF AMERICA D/B/A
COUNTRYWIDE HOME LOANS, INC.,
et al.,
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Defendants.
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This matter is before the court on the motion to dismiss the Second Amended Complaint
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filed by defendants Bank of America, N.A. (“Bank of America”) (erroneously sued as “BANK
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OF AMERICA D/B/A COUNTRYWIDE HOME LOANS INC.” and “BANK OF AMERICA
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D/B/A RECONTRUST”); Mortgage Electronic Registration Systems, Inc. (“MERS”)
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(erroneously sued as “MORTGAGE ELECTRONIC REGISTRATION SYSTEM”); and Federal
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National Mortgage Association D/B/A Fannie Mae (“Fannie Mae”) (collectively, “defendants”).
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(ECF 43.) The court held a hearing on January 31, 2014 at which Mitchell Abdallah appeared via
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telephone from an airplane for plaintiffs and Diane Cragg appeared via telephone for defendants.
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For the reasons below, the court GRANTS the motion.
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I.
ALLEGATIONS AND PROCEDURAL HISTORY
On or about June 21, 2005, plaintiffs Josue Rios and Yolanda Rios obtained a loan
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from Countrywide Home Loans, Inc. for $276,800.00. (Second Amended Complaint (“SAC”)
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¶ 8.) The loan was secured by a Deed of Trust on the real property located at 9125 La Riviera
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Drive, Sacramento. (Id. ¶¶ 1, 9.) Originally serving as both lender and trustee, Countrywide,
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which was controlled by defendant Bank of America, substituted defendant Recontrust as trustee
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under the deed of trust on October 9, 2009. (Id. ¶ 10.) In that same document, all interests in the
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deed of trust and the note were assigned to Citimortgage. (Id. ¶ 11.) Accordingly, as of October
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9, 2009, defendants Bank of America and Countrywide no longer had any legal interest in
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plaintiffs’ deed of trust and note. Plaintiffs made timely regular payments on their loan for
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several years. (Id. ¶ 9.)
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Meanwhile, on November 24, 2010, defendant Bank of America initiated a new
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substitution of trustee, once again to Recontrust, and a new assignment of plaintiffs’ deed of trust
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and note to defendant FNMA. (Id. ¶¶ 12–13.) Plaintiffs allege Bank of America completed this
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second substitution and assignment without authority because Bank of America had given up its
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interests a year earlier. (Id. ¶ 12.) Because Bank of America lacked authority, the November 24,
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2010 substitution and assignment is null and void. (Id. ¶ 13.) Moreover, as a result of the 2010
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substitution and assignment, plaintiffs were left wondering whom they must pay and whether they
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must pay the loan off twice: once to Citimortgage, the first party in interest, and once to FNMA,
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the second. (Id. ¶ 14.) T. Sevillano, as Assistant Secretary of Bank of America, signed the
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invalid 2010 substitution and assignment on November 17, 2010; California Notary Ahmad Afzal
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notarized it on November 19, 2010 in Ventura County, California. (Id. ¶ 15.) Plaintiffs allege
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these signings reek of impropriety: Sevillano resided in Costa Rica when she signed. (Id. ¶ 16.)
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How then could Afzal notarize her signature two days later in California? (Id.)
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Compounding plaintiffs’ confusion, FNMA ordered Recontrust to record a Notice
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of Default on November 18, 2010. (Id. ¶ 17.) FNMA lacked authority to do this, however,
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because Citimortgage was the beneficiary and it had never assigned its interests to FNMA. (Id.
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¶ 18.) As a result, plaintiffs allege they are in the dangerous position of being forced to pay
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FNMA the defaulted amounts owing on their loan, instead of paying the rightful beneficiary,
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Citimortgage. (Id. ¶ 21.)
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Plaintiffs allege the invalid 2010 substitution and assignment were the product of a
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fraudulent scheme by all defendants to produce false documents. (Id. ¶ 23.) Each defendant
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illegally used Sevillano, a well-documented “robo-signer,” to effect the invalid transfer. (Id.
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¶ 25.) Each defendant was aware FNMA lacked authority to record a notice of default and that
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Sevillano could not legally endorse the invalid transfer. (Id. ¶ 27.) Defendants misrepresented to
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plaintiffs that the 2010 transfer was valid and that they would comply with the laws that govern
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such transfers. (Id. ¶¶ 31–32.) Plaintiffs reasonably relied upon these misrepresentations to their
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detriment in that they do not know if FNMA or Citimortgage should receive their money to cure
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the default or which organization could approve a loan modification. (Id. ¶ 32.) Were it not for
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the false documents detailing the invalid transfer, plaintiffs could have cured their default and
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could have avoided several other injuries, such as further harm to their credit rating. (Id. ¶¶ 36–
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38.)
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Plaintiffs filed their original complaint on September 27, 2012, in which plaintiffs
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brought ten claims including a claim for fraud. (ECF 1.) On March 21, 2013, the court dismissed
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eight of plaintiffs’ ten claims, including their fraud claim, which plaintiffs were given leave to
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amend. (ECF 24.) Plaintiffs filed their First Amended Complaint (“FAC”) on May 29, 2013,
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bringing only four causes of action, including fraud. (ECF 26). The court granted defendants’
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motion to dismiss each of plaintiffs’ claims in their First Amended Complaint and once again
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gave plaintiffs leave to amend their fraud claim. (ECF 40 at 2 (“Order”.) Plaintiffs filed their
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Second Amended Complaint (“SAC”) on December 5, 2014, alleging only a fraud claim. (ECF
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42.) Defendants filed the instant motion to dismiss the Second Amended Complaint on
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December 23, 2013. (ECF 43.) Plaintiffs opposed on January 15, 2014 (ECF 45), and defendants
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replied on January 24, 2014 (ECF 48).
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II.
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STANDARDS FOR A MOTION TO DISMISS
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to
dismiss a complaint for “failure to state a claim upon which relief can be granted.” A court may
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dismiss “based on the lack of cognizable legal theory or the absence of sufficient facts alleged
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under a cognizable legal theory.” Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir.
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1990). A motion to dismiss under this rule may also challenge the sufficiency of fraud allegations
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under the more particularized standard of Rule 9(b) of the Federal Rules of Civil Procedure.
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Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003).
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Although a complaint need contain only “a short and plain statement of the claim
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showing that the pleader is entitled to relief,” FED. R. CIV. P. 8(a)(2), in order to survive a motion
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to dismiss this short and plain statement “must contain sufficient factual matter . . . to ‘state a
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claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
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Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something
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more than “an unadorned, the-defendant-unlawfully-harmed-me accusation” or “‘labels and
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conclusions’ or ‘a formulaic recitation of the elements of a cause of action.’” Id. (quoting
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Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss
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for failure to state a claim is a “context-specific task that requires the reviewing court to draw on
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its judicial experience and common sense.” Id. at 679. Ultimately, the inquiry focuses on the
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interplay between the factual allegations of the complaint and the dispositive issues of law in the
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action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).
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In making this context-specific evaluation, this court must construe the complaint
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in the light most favorable to the plaintiff and accept as true the factual allegations of the
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complaint. Erickson v. Pardus, 551 U.S. 89, 93–94 (2007). This rule does not apply to “‘a legal
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conclusion couched as a factual allegation,’” Papasan v. Allain, 478 U.S. 265, 286 (1986) (quoted
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in Twombly, 550 U.S. at 555), nor to “allegations that contradict matters properly subject to
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judicial notice” or to material attached to or incorporated by reference into the complaint.
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Sprewell v. Golden State Warriors, 266 F.3d 979, 988–89 (9th Cir. 2001). A court’s
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consideration of documents attached to a complaint or incorporated by reference or matter of
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judicial notice will not convert a motion to dismiss into a motion for summary judgment. United
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States v. Ritchie, 342 F.3d 903, 907–08 (9th Cir. 2003).
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III.
ANALYSIS
The defendants seek to dismiss plaintiffs’ sole fraud claim for failure to state a
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claim for which relief can be granted. (ECF 37.) Defendants argue plaintiffs’ fraud claim is not
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viable because plaintiffs do not meet the heightened pleading requirements for fraud. (ECF 43 at
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5.) Additionally, defendants argue plaintiffs do not sufficiently allege reliance or damages. (Id.)
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Plaintiffs counter they have pled with sufficient particularity and that they plead
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sufficient facts to demonstrate reliance and damages. (ECF 45 at 6–9.) Plaintiffs argue they pled
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reliance by alleging they tried to cure their default with the wrong entity. (Id. at 7.) Further,
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plaintiffs relied upon defendants’ representations to their detriment in that they were unsure if
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FNMA or Citimortgage could cure their default or approve a loan modification. (Id. at 7–8.)
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Having carefully reviewed the Second Amended Complaint, the court finds
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plaintiffs once again have not sufficiently pled reliance and damages. See Lazar v. Superior
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Court, 12 Cal. 4th 631, 638 (1996) (two of the five elements of fraud are (1) that the plaintiff
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justifiably and reasonably relied on the fraudulent representation and (2) the plaintiff suffered
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resulting damages). Plaintiffs allege the “2010 substitution and assignment . . . is the product of a
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fraudulent scheme by all defendants to produce false documents” (SAC ¶ 23) and that “T.
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Sevillano is a well-documented ‘robo-signer’, or surrogate signer” who lacked legal authority to
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endorse the 2010 transfer or interests “to carry out the fraud” by “illegally signing the substitution
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and assignment on November 17, 2010 from San Jose, Costa Rica, only to have it notarized two
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days later by Ahmad Afzal in Ventura County, California” (id. ¶ 25). Yet, as when this court
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found in its order on the last motion to dismiss in this case (Order at 7), plaintiffs again plead no
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facts to suggest their reliance on the validity of the 2010 transfer caused their alleged damages.
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For example, plaintiffs do not plead they had the means to cure their default if only they knew
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with which entity they should deal. Accordingly, plaintiffs’ reliance on defendants’ alleged
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misrepresentations did not cause any of plaintiffs’ pled injuries, such as a negative credit rating or
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anxiety and worry over retaining their residence.
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Moreover, plaintiffs’ own allegations in their complaint contradict their reliance
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arguments. Plaintiffs allege they did not become aware of defendants’ misrepresentations until
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after they entered into default and sought the help of a lawyer; plaintiff’s counsel clarified at
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hearing that this was in or about September 2012. (SAC ¶ 32.) FNMA initiated the foreclosure
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proceedings on plaintiffs’ home in 2010 (id. ¶ 17); if plaintiffs had no reason to suspect Bank of
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America could not assign Citimortgage’s interest to FNMA in 2010, then plaintiffs could not have
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been confused about which entity should receive their payments to cure. Again, there is no
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allegation plaintiffs tried to make payments that were rejected because the payments were sent to
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the incorrect entity.
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Because plaintiffs have not satisfactorily pled a fraud claim after twice receiving
leave to amend, the court finds granting leave to amend a third time, to give plaintiffs a fourth
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bite at the apple, would be futile. See Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160
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(9th Cir. 1989) (leave to amend “need not be granted where the amendment of the complaint
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would cause the opposing party undue prejudice, is sought in bad faith, constitutes an exercise in
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futility, or creates undue delay”). Plaintiffs’ claim is dismissed with prejudice.
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IV.
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CONCLUSION
For the foregoing reasons, the court GRANTS defendants’ motion to dismiss, with
prejudice. This case is CLOSED.
IT IS SO ORDERED.
Dated: February 12, 2014.
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UNITED STATES DISTRICT JUDGE
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