Dick v. American Home Mortgage Servicing Inc., et al

Filing 72

MEMORANDUM AND ORDER signed by Senior Judge William B. Shubb on 1/14/2014 GRANTING 57 , 62 Motions to Dismiss; DISMISSING all claims with prejudice and without leave to amend; CASE CLOSED. (cc: Bankruptcy Judge Klein, Bankruptcy Clerk Sacramento) (Michel, G)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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----oo0oo----

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GABRIEL DICK and JILL DICK,

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CIV. NO. 2:13-00201 WBS CKD

Plaintiffs,

BK. NO. 2:11-45476
ADV. PRO. NO. 12-2007

v.

MEMORANDUM AND ORDER RE:
MOTION TO DISMISS

AMERICAN HOME MORTGAGE
SERVICING, INC. AMERIQUEST
MORTGAGE CO., AMERIQUEST
MORTGAGE SECURITIES, INC.
DEUTSCHE BANK NATIONAL TRUST,
TOWN AND COUNTRY TITLE SERVICES,
CITI RESIDENTIAL LENDING, and
POWER DEFAULT SERVICES, INC.,
Defendants.

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----oo0oo---Plaintiffs Gabriel Dick and Jill Dick brought this
action against defendants Homeward Residential, Inc., formerly
known as American Home Mortgage Servicing, Inc.; Ameriquest
Mortgage Co.; Ameriquest Mortgage Securities, Inc.; Deutsche Bank
National Trust; Town and Country Title Services; Citi Residential

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Lending; and Power Default Services, Inc., arising from the
foreclosure of their home.

Services, Ameriquest Mortgage Company, and Ameriquest Mortgage
Securities, Inc., (“Ameriquest defendants”) and defendants
Homeward Residential, Inc., Deutsche Bank National Trust Company,
and Power Default Services, Inc., (“remaining defendants”) now
separately move to dismiss plaintiffs’ Second Amended Complaint
(“SAC”) for failure to state a claim upon which relief can be
granted pursuant to Federal Rule of Civil Procedure 12(b)(6).
(Docket Nos. 57 and 62, respectively.)
I.

Factual and Procedural Background

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Defendants Town and Country Title

The factual background of this case is described in
detail in the court’s September 18, 2013, Order granting
defendants’ motion to dismiss.

(Docket No. 40.)

In short,

plaintiffs obtained a loan in the amount of $270,000.00 from
Ameriquest Mortgage Company (“Ameriquest”) in 2003, secured by a
Note and Deed of Trust on property located at 11603 Northern
Lights Drive in Grass Valley, California (the “Property”).

(SAC

¶¶ 2-3, 12-13; Defs.’ Req. for Judicial Notice in Supp. Of
Ameriquest’s Mot. To Dismiss (“Ameriquest RJN”) Ex. A (Docket No.
58-1).)1

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A court may take judicial notice of facts “not subject
to reasonable dispute” because they are either “(1) generally
known within the territorial jurisdiction of the trial court or
(2) capable of accurate and ready determination by resort to
sources whose accuracy cannot reasonably be questioned.”
Turnacliff v. Westly, 456 F.3d 1113, 1120 n.5 (9th Cir. 2008)
(quoting Fed. R. Evid. 201) (internal quotations omitted).
Defendants separately request that the court judicially
notice of various recorded documents relating to the Property, as
well as documents filed in plaintiffs’ bankruptcy proceeding.
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Ameriquest assigned its interest in the Note and Deed
of Trust to Deutsche Bank National Trust Company (“Deutsche
Bank”) by way of a Corporate Assignment and Deed of Trust.
¶ 18; Ex. 1.)

(SAC

Plaintiffs allege this assignment to a securitized

trust was improper because it violated the terms of the trust’s
pooling and servicing agreement.

(Id. ¶¶ 26-64.)

Sometime in 2010, plaintiffs allege an employee of
American Home Mortgage Servicing, Inc., (“AHMSI”) named “HOUTEN”
represented to plaintiffs that they would receive a loan
modification if they became three months delinquent on their
mortgage payments.

(Id. ¶ 71.)

However, on October 12, 2010,

Deutsche Bank recorded a Notice of Default and Election to Sell
Under Deed of Trust (“NOD”) against the Property, which stated
plaintiffs were in default on the loan, owing at least
$15,379.31.

(Id. ¶¶ 21-23, Ex. 2.)

Subsequently, Power Default Services, Inc., recorded a
Notice of Trustee’s Sale against the Property, (id. Ex 3), and,
on May 6, 2011, executed a Trustee’s Deed Upon Sale conveying the
Property to Deutsche Bank, (id. Ex. 4).
sale never actually took place.

Plaintiffs allege this

(Id. ¶ 25.)

In October 2011, plaintiffs filed a Chapter 7
bankruptcy petition in the United States Bankruptcy Court for the
Eastern District of California, (Bk. No. 11-45476; RJN Ex. I.).

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(See Ameriquest RJN Exs. A-B; Defs.’ Req. for Judicial Notice
(“RJN”) Exs. A-J (Docket No. 63).). Plaintiffs do not oppose the
request. The court will take judicial notice of these documents,
since they are matters of public record whose accuracy cannot be
questioned. See Lee v. City of Los Angeles, 250 F.3d 668, 689
(9th Cir. 2001).
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On January 5, 2012, plaintiffs filed a complaint to commence a
bankruptcy adversary proceeding, (Ad. Pro. No. 12-02007), and
filed an amended complaint (“FAC”) in that proceeding on February
9, 2012.

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Plaintiffs obtained a discharge in bankruptcy on
February 13, 2012, (RJN Ex. J), and the court granted plaintiffs’
motion to withdraw the reference of the adversary complaint to
bankruptcy court on July 16, 2013.

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On

September 18, 2013, the court granted Ameriquest defendants’
motion to dismiss plaintiffs’ FAC.

(Docket No. 40.)

Plaintiffs

filed the SAC on October 8, 2013, realleging claims for wrongful
foreclosure, fraud, and cancellation of instruments.
41.)

(Docket No.

Defendants now move to dismiss the SAC for failure to state

a claim pursuant to Rule 12(b)(6).
II.

Analysis

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(Docket No. 32.)

On a motion to dismiss, the court must accept the
allegations in the complaint as true and draw all reasonable
inferences in favor of the plaintiff.

Scheuer v. Rhodes, 416

U.S. 232, 236 (1974), overruled on other grounds by Davis v.
Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S. 319, 322
(1972).

To survive a motion to dismiss, a plaintiff needs to

plead “only enough facts to state a claim to relief that is
plausible on its face.”
544, 570 (2007).

Bell Atl. Corp. v. Twombly, 550 U.S.

This “plausibility standard,” however, “asks

for more than a sheer possibility that a defendant has acted
unlawfully,” and where a complaint pleads facts that are “merely
consistent with” a defendant’s liability, it “stops short of the

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line between possibility and plausibility.”

Ashcroft v. Iqbal,

556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 556–57).
A.

Wrongful Foreclosure
Under California law, “[w]rongful foreclosure is an

action in equity, where a plaintiff seeks to set aside a
foreclosure sale.”

Castaneda v. Saxon Mortgage Servs., Inc., 687

F. Supp. 2d 1191, 1201 (E.D. Cal. 2009) (Shubb, J.).

California

courts require an allegation of prejudice to maintain a wrongful
foreclosure claim.

Herrejon v. Ocwen Loan Servicing, LLC, --- F.

Supp. 2d ----, Civ. No. F 13-1756 LJO MJS, 2013 WL 5934148, at *8
(E.D. Cal. Nov. 1, 2013) (citing Fontenot v. Wells Fargo Bank,
N.A., 198 Cal. App. 4th 256, 272 (1st Dist. 2011)).
Allegations that the improper party initiated
foreclosure proceedings do not satisfy the element of prejudice;
rather, a plaintiff must allege facts demonstrating “that the
foreclosure would have been averted but for these alleged
deficiencies.”

Reynoso v. Paul Fin., LLC, No. 09-3225 SC, 2009

WL 3833298, at *4 (N.D. Cal. Nov. 16, 2009); see also Ghuman v.
Wells Fargo Bank, N.A., Civ. No. 1:12–00902 AWI BAM, 2012 WL
2263276, at *5 (E.D. Cal. Jun. 15, 2012) (noting “Plaintiffs
would be hard pressed to show any conceivable prejudice” from
alleged improper substitution of trustee because a “substitution
would simply have replaced one trustee with another without
modifying Plaintiffs’ obligations under the note or deed of
trust”); Permito v. Wells Fargo Bank, N.A., No. C–12–00545 YGR,
2012 WL 1380322, at *6 (N.D. Cal. Apr. 20, 2012) (“[F]or a
foreclosure to be ‘wrongful,’ Plaintiff also must allege that no

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entity had the right to foreclose upon her, not simply that the
wrong entity foreclosed upon her.”).
Here, plaintiffs have amended their complaint to add
conclusory allegations of prejudice.

(See SAC ¶ 69 (“Plaintiffs

allege that they were prejudiced as a result of this process.”).)
In more detail, plaintiffs claim that, had the loan not been
improperly assigned, “the original lender would not have
foreclosed upon the Subject Property as it would have been more
profitable to modify the Subject Loan.”

(Id.)

These allegations

provide no factual basis, beyond sheer speculation, for an
inference that “the foreclosure would have been averted but for
these alleged deficiencies.”

Reynoso, 2009 WL 3833298, at *4.

The allegations are also highly implausible because, as
plaintiffs themselves admit, the original lender Ameriquest could
not have offered a modification because it was no longer in the
mortgage business.

(See Pls.’ Opp’n (Docket No. 65) at 17:24-

18:2 (noting Ameriquest “was defunct in 2009” and “did not exist
in 2009”).)
Even if plaintiffs were able to obtain a modification,
there is no factual basis to assume they would have made the
payments and prevented foreclosure by curing the default.
Plaintiffs do not dispute they were in default on the loan, and
owed $15,379.31 as of October 7, 2010.

(SAC Ex. 2.)

Plaintiffs

have not alleged any facts to suggest the allegedly improper
assignment “adversely affected their ability to pay or to cure
their default.”

Ghuman, 2012 WL 2263276, at *5.

Without more,

plaintiffs have not alleged any prejudice from any party’s lack

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of authority in the foreclosure process.

Elec. Registration Sys., Inc., 219 Cal. App. 4th 75, 85 (2d Dist
2013) (finding no prejudice when plaintiffs “do not dispute that
they are in default under the note,” the “assignment of the deed
of trust and the note did not change [plaintiffs’] obligations
under the note, and there is no reason to believe that . . . the
original lender would have refrained from foreclosure in these
circumstances.”).

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Accordingly, because prejudice is an essential

element of a wrongful foreclosure claim, the court must grant
defendants’ motions to dismiss this claim.2
B.

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See Siliga v. Mortg.

Fraud
“The elements of fraud are (1) misrepresentation; (2)

knowledge of falsity; (3) intent to defraud; (4) justifiable
reliance; and (5) resulting damage.”

Doe v. Gangland Prods.,

Inc., 730 F.3d 946, 960 (9th Cir. 2013) (citing Lazar v. Superior
Court, 12 Cal. 4th 631, 638 (1996)).

Under the heightened

pleading requirements for claims of fraud under Federal Rule of
Civil Procedure 9(b), “a party must state with particularity the
circumstances constituting the fraud.”

Fed. R. Civ. P. 9(b).

“Rule 9(b) demands that the circumstances constituting the
alleged fraud ‘be specific enough to give defendants notice of
the particular misconduct . . . so that they can defend against
the charge and not just deny that they have done anything

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2

Plaintiffs’ reliance on Glaski v. Bank of Am., Nat’l
Ass’n, 218 Cal. App. 4th 1079 (5th Dist. 2013), is misplaced.
Glaski did not address the issue of prejudice one way or another.
Were it even controlling here--and it is not--Glaski does not
stand for the proposition that plaintiffs need not allege
prejudice in a wrongful foreclosure claim.
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wrong.’”

2009) (quoting Bly–Magee v. California, 236 F.3d 1014, 1019 (9th
Cir. 2001) (internal quotation marks and citations omitted)).

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To survive a motion to dismiss, a plaintiff must
include the “who, what, when, where, and how” of the fraud.

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Vess

v. Ciba–Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)
(citation omitted).

“When bringing a fraud claim against a

corporate defendant, a plaintiff must ‘allege the names of the
persons who made the allegedly fraudulent representations, their
authority to speak, to whom they spoke, what they said or wrote,
and when it was said or written.’”

Lugo v. Bank of Am., N.A.,

Civ. No. 2:11-01956 MCE EFB, 2012 WL 893878, at *5 (E.D. Cal.
Mar. 15, 2012) (quoting Tarmann v. State Farm Mut. Auto. Ins.
Co., 2 Cal. App. 4th 153, 157 (6th Dist. 1991)).

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Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir.

Plaintiffs have amended this claim to allege two
separate misrepresentations.

One generally claims that all

defendants “and their representatives/employees/agents”
represented “to Plaintiffs and the general public” that “they had
the right, power and authority to foreclosure upon the Subject
Property” from 2009 to 2011.

(SAC ¶¶ 76-80).

These allegations

clearly fail for lack of specificity, and do not come close to
“stat[ing] with particularity the circumstances constituting the
fraud,” Fed. R. Civ. P. 9(b), much less “give defendants notice
of the particular misconduct . . . so that they can defend
against the charge and not just deny that they have done anything
wrong.”

Kearns, 567 F.3d at 1124.
Plaintiffs also allege that, sometime “[i]n or about

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2010,” a representative of AHMSI named “HOUTEN” falsely
“represented that Plaintiffs would receive a loan modification if
they became three months delinquent in their mortgage payments
and returned all of the requested modification applications and
requested documents.”

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Plaintiffs claim they

justifiably relied on this representation, did not receive a loan
modification, and as a result “were induced to accept a loan
modification with unfavorable and unfair terms,” ultimately
losing title to the Property through foreclosure.

(Id. ¶¶ 71-75;

¶ 81.)

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(SAC ¶ 71.)

Even assuming plaintiffs adequately pled the
circumstances of this alleged fraud with sufficient
particularity, plaintiffs have fallen short of stating a
plausible claim of relief.

Plaintiffs must “allege facts showing

that [their] reliance on [the alleged] statement caused the
trustee’s sale of [their] home.”

Sholiay v. Fed. Nat. Mortgage

Ass’n, Civ. No. 2:13-00958 WBS, 2013 WL 3773896, at *6 (E.D. Cal.
July 17, 2013).

In Sholiay, the plaintiff claimed that, but for

defendant’s alleged misrepresentation that plaintiff would
receive a loan modification, plaintiff would have sought legal
advice and prevented the foreclosure of his home.

Id.

However,

this court dismissed the claim because the plaintiff “fail[ed] to
allege facts suggesting how hiring a lawyer could have prevented
the sale.”

Id.
Here, although plaintiffs allege they “were induced to

continue seeking a modifications [sic] when they could have
explored other remedies such as a short sale, deed in lieu for

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foreclosure or could have obtained alternative financing,” (SAC ¶
75), they do not allege any facts suggesting how pursuing these
hypothetical avenues could have prevented the foreclosure of
their home.

As in Sholiay, the allegations do not allow for a

plausible inference that plaintiffs would have been able to make
the payments on the loan, or that these purported alternative
remedies would have been successful in stemming the eventual
foreclosure.

2013 WL 3773896, at *6; see also Manzano v. Metlife

Bank N.A., Civ. No. 2:11-651 WBS DA, 2011 WL 2080249, at *5 (E.D.
Cal. May 25, 2011) (dismissing fraud claim that misrepresentation
regarding loan modification caused plaintiff to stop making
payments where plaintiff did not allege she otherwise would or
could have resumed making the payments); Newgent v. Wells Fargo
Bank, N.A., Civ. No. 09-1525 WQH, 2010 WL 761236, at *5 (S.D.
Cal. Mar. 2, 2010) (dismissing fraud claim because plaintiff did
“not allege facts that support a cognizable theory upon which she
would have succeeded in preventing the trustee’s sale.”); cf.
DeLeon v. Wells Fargo Bank, N.A., Civ. No. 10–10390 LHK, 2011 WL
311376, at *7 (N.D. Cal. Jan. 28, 2011) (dismissing unfair
competition claim asserting fraud because “[w]ithout some factual
basis suggesting that Plaintiffs could have cured the default . .
. the Court cannot reasonably infer that [defendant’s] alleged
misrepresentations resulted in the loss of Plaintiffs’ home.
Rather, the facts alleged suggest that Plaintiffs lost their home
because they became unable to keep up with monthly payments and
lacked the financial resources to cure the default.”).
Accordingly, because plaintiffs do not state a

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plausible claim of relief, the court must grant defendants’
motions to dismiss the fraud claim.
C.

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Cancellation of Instruments
“The Court may order cancellation of an invalid written

instrument that is void or voidable.”

Compass Bank v. Petersen,

886 F. Supp. 2d 1186, 1194 (C.D. Cal. 2012) (citing Cal. Civ.
Code §§ 3412, et seq).

“To plead a cause of action for

cancellation of instrument, plaintiff must show that he will be
injured or prejudiced if the instrument is not cancelled, and
that such instrument is void or voidable.”

Zendejas v. GMAC

Wholesale Mortg. Corp., Civ. No. 1:10–00184 OWW GSA, 2010 WL
2629899, at *7 (E.D. Cal. June 29, 2010).

“A party is not

prejudiced by an irregularity if he is unable to pay his
reasonable indebtedness.”

Wilson v. Household Fin. Corp, Civ.

No. S-12-1413 KJM AC, 2013 WL 1310589, at *8 (E.D. Cal. Mar. 28,
2013).
Plaintiffs have amended this claim to add a single
allegation of prejudice.

(SAC ¶ 86 (“Plaintiffs have been

prejudiced in that they have wrongly deprived of title of the
Subject Property.”).)

This conclusory allegation provides no

factual basis for plaintiffs’ assertion of prejudice.

Moreover,

for the same reasons regarding plaintiffs’ wrongful foreclosure
claim, plaintiffs cannot allege prejudice here because they
cannot plausibly allege that the improper assignment affected
their inability to pay their debt.

See also Cornell v. That

Certain Instrument Entitled Deed of Trust, Civ. No. 2:12–330 WBS
CKD, 2012 WL 1869689, at *5 (E.D. Cal. May 22, 2012) (requiring

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causal relationship between alleged deficiency and circumstances
leading to foreclosure).

default and lost title to the property through foreclosure, (SAC
¶ 81), and do not allege an ability “to pay [their] reasonable
indebtedness.”

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of instruments.3
D.

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Leave to Amend
Although leave to amend must be freely given, the court

is not required to allow futile amendments.

See DeSoto v. Yellow

Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992).

Because

the court has already permitted plaintiffs to amend their
pleadings and it appears that plaintiffs are unable to state a
viable claim against defendants, all claims will be dismissed
with prejudice and without leave to amend.
IT IS THEREFORE ORDERED that defendants’ motions to
dismiss be, and the same hereby are, GRANTED.

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Accordingly,

defendants’ motions to dismiss plaintiffs’ claim for cancellation

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Wilson, 2013 WL 1310589, at *8.

because plaintiffs fail to allege prejudice, the court must grant

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Finally, plaintiffs admit they are in

The Clerk of the Court is directed to enter a judgment
of dismissal in accordance with this Order and close the file.
Dated:

January 14, 2014

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Because the court grants defendants’ motions to dismiss
the SAC in its entirety, it need not reach defendants’ arguments
that plaintiffs are estopped from bringing claims that they did
not include in their bankruptcy petition, that plaintiffs did not
comply with the tender rule, and that plaintiffs lack standing.
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