Gammad, et al v. CitiMortgage, Inc.

Filing 28

ORDER GRANTING MOTION TO DISMISS; VACATING HEARING. Citimortgage's motion to dismiss is granted and the FAC is dismissed with leave to amend the Third Cause of Action. Plaintiffs' Second Amended Complaint, if any, shall be filed no later than January 13, 2012. Signed by Judge Maxine M. Chesney on December 21, 2011. (mmclc2, COURT STAFF) (Filed on 12/21/2011)

1
2
3
4
5
6
7
8

IN THE UNITED STATES DISTRICT COURT

9

FOR THE NORTHERN DISTRICT OF CALIFORNIA

For the Northern District of California

United States District Court

10
11

DIOSDADO GAMMAD, et al.,
Plaintiffs,

12
v.

13
14
15

No. C 11-3531 MMC
ORDER GRANTING MOTION TO
DISMISS; VACATING HEARING

CITIMORTGAGE, INC.,
Defendant.

/

16
17

Before the Court is defendant Citimortgage, Inc.’s (“Citimortgage”) Motion to Dismiss

18

plaintiffs Diosdado and Dolores Gammad’s First Amended Complaint (“FAC”), filed October

19

27, 2011. Plaintiffs have filed opposition, to which defendant has replied. Having read and

20

considered the parties’ respective written submissions, the Court deems the matter suitable

21

for decision thereon, VACATES the hearing scheduled for December 23, 2011, and rules

22

as follows.
BACKGROUND

23
24

Plaintiffs allege they obtained, in January 2007, a $680,000 adjustable rate loan

25

from Argent Mortgage Company (“Subject Loan”), secured by a deed of trust on real

26

property located at 123 Marbly Avenue, Daly City, California. (See FAC ¶¶ 2, 8.)1

27
1

28

Citimortgage requests the Court take judicial notice of documents showing Argent
Mortgage Company assigned all beneficial interest in the Subject Loan to Mortgage
Electronic Registration Systems, Inc. (“MERS”) (see RJN, Ex. B) and, on February 25,

1

Plaintiffs allege that “[i]n or about March 2009, [d]efendants made false

2

representations that [p]laintiffs would receive a fixed-rate modified loan” (see FAC ¶ 18) “in

3

order to induce [p]laintiffs to sign [a] loan modification agreement which contained

4

adjustable rate provisions and unfavorable loan terms” (see FAC ¶ 21). Plaintiffs further

5

allege that “on or around April 22, 2009,” they entered into a loan modification agreement

6

that contained “a variable interest rate that would adjust up to 4.975%” (“Modification

7

Agreement”). (See FAC ¶¶ 12.) Thereafter, plaintiffs allege, “[d]efendants recorded a

8

Notice of Default with the San Mateo County Office of the Assessor-Recorder’s Office on

9

March 1, 2011” (see FAC ¶ 33) and “recorded a Notice of Trustee Sale with the San Mateo

10
11

County Office of the Assessor-Recorder’s Office on June 6, 2011” (see FAC ¶ 33).2
Based on the above-described allegations, plaintiffs assert four causes of action:

12

misrepresentation, breach of oral contract, violation of California Civil Code section 2923.5,

13

and quiet title. Plaintiffs filed the above-titled action on June 22, 2011 in the San Mateo

14

County Superior Court; on July 18, 2011, Citimortgage removed the action to this district.

15

(See Notice of Removal of Superior Court Action to Federal Court, filed July 18, 2011.)
LEGAL STANDARD

16
17

Dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure can be based

18

on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a

19

cognizable legal theory. See Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir.

20

1990). In analyzing a motion to dismiss, a district court must accept as true all material

21

allegations in the complaint, and construe them in the light most favorable to the

22

nonmoving party. See NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986).

23

Nevertheless, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual

24
25
26
27

2011, MERS assigned the beneficial interest in the Subject Loan to Citimortgage. (See
RJN, Ex. D). Citimortgage’s Request for Judicial Notice is hereby GRANTED. See Fed. R.
Evid. 201(b); Gamboa v. Trustee Corps, No. 09-0007 SC, 2009 WL 656285 at *2-4 (N.D.
Cal. Mar. 12, 2009) (taking judicial notice of recorded mortgage and foreclosure
documents).
2

28

Plaintiffs do not allege the trustee’s sale has gone forward, nor has Citimortgage
requested the Court take judicial notice of documentation reflecting such sale.
2

1

material, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft

2

v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S.

3

544, 570 (2007)). “Factual allegations must be enough to raise a right to relief above the

4

speculative level[.]” Twombly, 550 U.S. at 555. Courts “are not bound to accept as true a

5

legal conclusion couched as a factual allegation.” See Iqbal, 129 S. Ct. at 1950 (internal

6

quotation and citation omitted).
DISCUSSION

7
8
9

I.

Misrepresentation
Plaintiffs’ First Cause of Action is for misrepresentation. The elements of a claim for

10

misrepresentation are: “(a) a misrepresentation (false representation, concealment, or

11

nondisclosure); (b) knowledge of falsity (or ‘scienter’); (c) intent to defraud, i.e., to induce

12

reliance; (d) justifiable reliance; and (e) resulting damage.” See In re Estate of Young, 160

13

Cal. App. 4th 62, 79 (2008) (internal quotation and citation omitted). Additionally, under

14

Rule 9(b) of the Federal Rules of Civil Procedure, a plaintiff alleging such a claim “must

15

state with particularity the circumstances constituting fraud.” See Fed. R. Civ. P. 9(b).

16

With respect to the first element plaintiffs, as noted, allege that “[i]n or about March

17

2009, [d]efendants made false representations that [p]laintiffs would receive a fixed-rate

18

modified loan.” (See FAC ¶ 18.) An allegation of such general nature is insufficient to

19

meet the requirements of Rule 9(b). See, e.g., Vess v. Ciba-Geigy Corp. USA, 317 F.3d

20

1097, 1106 (9th Cir. 2003) (holding “[a]verments of fraud must be accompanied by the

21

who, what, when, where, and how of the misconduct charged”; finding allegations

22

insufficient where plaintiff failed to allege specifics of alleged misrepresentation) (internal

23

quotation and citation omitted). Moreover, although plaintiffs allege they “reasonably relied

24

on [d]efendants’ representation that they would receive a fixed-rate modified loan,” (see

25

FAC ¶ 22), plaintiffs do not allege they did so at the time they signed the Modification

26

Agreement, and, indeed, concede they “relied on the statements of [d]efendant until the

27

day they signed the agreement” (see Opp. at 5:8-10 (stating plaintiffs “reluctantly [signed

28

the agreement] only because they did not believe the bank would offer a loan modification
3

1

otherwise”)).
Further, even if plaintiffs had alleged reliance on the asserted misrepresentation,

2
3

such reliance cannot, as a matter of law, be deemed reasonable, in that, as plaintiffs allege,

4

the express terms of the Modification Agreement contradict the alleged misrepresentation.

5

See Brown v. Wells Fargo Bank, NA, 168 Cal. App. 4th 938, 958-59 (2008) (holding, where

6

parties to contract do not have fiduciary relationship, plaintiff cannot establish fraud claim

7

based on theory defendant “misrepresented the nature of the contract”; noting such plaintiff

8

is presumed to have read contract).3 In particular, the Modification Agreement, on its first

9

page, expressly and unambiguously lists the “yearly rate of interest on the Note and the

10

corresponding monthly installments due to Lender,” which list shows the rate will increase

11

for two years and thereafter will become fixed for the remaining period of the loan. (See

12

RJN, Ex. C.) Plaintiffs cannot allege they reasonably relied on a representation flatly

13

contradicted by the contract they signed.4
Accordingly, plaintiffs’ First Cause of Action will be dismissed without leave to

14
15

amend.

16

II.

17

Breach of Oral Contract
Plaintiffs’ Second Cause of Action is for breach of oral contract. Plaintiffs allege

18

“CitiMortgage promised [p]laintiffs a modified loan with a fixed rate, payable over a period

19

of 30 years” (see FAC ¶ 27) and “breached its oral agreement with [p]laintiffs by providing a

20

loan modification agreement with a variable interest rate” (see FAC ¶ 28).

21
22

Plaintiffs’ claim for breach of contract, as Citimortgage points out, is barred by the
applicable statute of limitations. See Cal. Code Civ. Pro. § 339(1) (providing two-year

23
3

24
25
26
27
28

Plaintiffs do not allege they had a fiduciary relationship with Citimortgage, nor does
it appear they could do so. See Nymark v. Heart Fed. Sav. & Loan Ass’n, 231 Cal. App. 3d
1089, 1093 n.1 (1991) (“The relationship between a lending institution and its borrowerclient is not fiduciary in nature.”).
4

Plaintiffs’ reliance on Manderville v. PCG & S Group, Inc., 146 Cal. App. 4th 1486
(2007), is misplaced. The issue in Manderville was whether inclusion of an exculpatory
provision relieves a defendant of liability for intentional misrepresentation. See id. at 1499,
1503. Manderville did not involve an alleged misrepresentation that was contradicted by
the unambiguous provisions of the contract.
4

1

statute of limitations for oral contract claims). Plaintiffs allege the breach occurred on April

2

22, 2009, the date on which they signed the Modification Agreement. (See FAC ¶¶ 12, 27-

3

28.) Consequently, pursuant to section 339(1), plaintiffs had until April 22, 2011 to file their

4

claim for breach of contract. As noted, the instant action was not filed in the Superior Court

5

until June 22, 2011. Nor can plaintiffs plead a basis for equitable tolling of the limitations

6

period. As discussed above, the terms of the Modification Agreement providing for a

7

variable interest rate were clearly set forth therein. See, e.g., Ausano v. BAC Home Loans

8

Servicing, LP, No. 10cv4 BTM (WVG), 2010 WL 3463647 at *3 (S.D. Cal. Aug. 31, 2010)

9

(finding equitable tolling inapplicable even where plaintiffs “claim[ed] they could not read

10

the loan documents [in English];” holding “a diligent plaintiff would have the documents

11

translated before the statute of limitations had expired”).
Moreover, plaintiffs’ claim for breach of contract is barred by the statute of frauds.

12
13

As Citimortgage points out, mortgage loans and deeds of trust must be memorialized by a

14

written document signed by the party against whom the action to enforce is brought. See

15

Cal. Civ. Code § 1624; Secrest v. Sec. Nat’l Mortg. Loan Trust 2002-2, 167 Cal. App. 4th

16

544, 552 (2008). “An agreement to modify a contract that is subject to the statute of frauds

17

is also subject to the statute of frauds” and must be in writing. See Secrest, 167 Cal. App.

18

4th at 553.5
Accordingly, plaintiffs’ Second Cause of Action will be dismissed without leave to

19
20

amend.

21

III.

22

California Civil Code Section 2923.5
Plaintiffs’ Third Cause of Action is for violation of section 2923.5 of the California

23

Civil Code. Section 2923.5 provides that “[a] mortgagee, trustee, beneficiary, or authorized

24

agent may not file a notice of default . . . until 30 days after” said party “contact[s] the

25

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

26

explore options for the borrower to avoid foreclosure.” See Cal. Civ. Code § 2923.5(a).

27
5

28

In light of the above-referenced deficiencies, the Court does not reach herein
Citimortgage’s alternative grounds for dismissal of the claim.
5

1

Section 2923.5 also provides that “[d]uring the initial contact, the mortgagee, beneficiary, or

2

authorized agent shall advise the borrower that he she has the right to request a

3

subsequent meeting, and, if requested, the mortgagee, beneficiary, or authorized agent

4

shall schedule the meeting to occur within 14 days” and, further, that “the borrower shall be

5

provided the toll-free telephone number made available by the United States Department of

6

Housing and Urban Development (HUD) to find a HUD-certified housing counseling

7

agency.” See id. Section 2923.5 applies “only to mortgages or deeds of trust recorded

8

from January 1, 2003, to December 31, 2007.” See Cal. Civ. Code § 2923.5(i).

9

Here, the only notice of default plaintiffs allege is the notice filed March 1, 2011.

10

(See FAC ¶ 33.) Plaintiffs’ factual allegations, however, appear to pertain to an earlier

11

period. (See FAC ¶ 34 (alleging plaintiffs “tried to contact [d]efendants, in or about

12

February 2009, concerning [p]laintiffs’ desire to work out a suitable financial resolution”);

13

FAC ¶ 35 (alleging “[f]ollowing [p]laintiffs’ initiation of contact, [d]efendants failed to provide

14

[p]laintiffs information on their right to request a subsequent meeting within 14 days to

15

assess the [p]laintiffs’ financial situation”); FAC ¶ 36 (alleging “[d]efendants also failed to

16

provide [p]laintiffs with a toll-free number set up by the Department of Housing and Urban

17

Development (‘HUD’) to find a HUD-certified housing counseling agency”).)

18

Moreover, plaintiffs, as noted, do not allege a notice of default was filed at that

19

earlier time, and, indeed, as to that period, allege they ultimately did meet with the lender

20

and obtained a modification of the original loan terms. (See FAC ¶ 12.) Although plaintiffs,

21

in more general fashion, allege “[n]o contact concerning the default of [p]laintiffs’ Subject

22

Loan was ever initiated by [d]efendants” (see FAC ¶ 34), given the absence of any facts

23

describing the period immediately preceding the 2011 notice of default, it is unclear

24

whether plaintiffs are alleging a failure to comply with section 2923.5 at that time.

25

Consequently, plaintiffs’ claim under section 2923.5 is subject to dismissal. See Iqbal, 129

26

S.Ct. at 1949 (holding plaintiff must plead “factual content that allows the court to draw the

27
28
6

1

reasonable inference that the defendant is liable for the misconduct alleged”).6
Citimortgage argues the claim should be dismissed without leave to amend, on the

2
3

ground the 2011 notice of default is not covered by section 2923.5. In particular,

4

Citimortgage points out the Modification Agreement was recorded after December 1, 2007.

5

See Cal. Civ. Code § 2923.5(i) (providing statute applies “only to mortgages or deeds of

6

trust recorded from January 1, 2003, to December 31, 2007"). Citimortgage cites no

7

authority suggesting the Subject Loan and the Modification Agreement should be treated as

8

two separate mortgages for purposes of section 2923.5. In the absence of such authority

9

the Court is not persuaded plaintiffs’ claim should be dismissed without leave to amend.7
Accordingly, plaintiffs’ Third Cause of Action will be dismissed with leave to amend.

10
11

IV.

Quiet Title

12

Plaintiffs’ Fourth Cause of Action is for quiet title. A claim for quiet title requires the

13

following five elements be pleaded, and that they be pleaded in a verified complaint:8 (1) a

14

description of the property; (2) the title of the plaintiff, and the basis for that title; (3) the

15

adverse claims to the plaintiff’s title; (4) the date as of which the determination is sought;

16

and (5) a prayer for the determination of the title against the adverse claims. See Cal. Civ.

17

Proc. Code § 761.020. Additionally, “[t]o maintain a quiet title claim, a plaintiff is required to

18

allege tender of the proceeds of the loan at the pleading stage . . . [or] plead an ability to

19

tender.” See Briosos, 737 F. Supp. 2d at 1032 (internal quotation, citation and emphasis

20

omitted).

21
6

22
23
24
25
26
27
28

The Court further notes that plaintiffs’ only available remedy under section 2923.5
is a delay of foreclosure, and, consequently, is only available prior to the trustee’s sale.
See Mabry v. Superior Court, 185 Cal. App. 4th 208, 235 (2010) (“[T]he only remedy
provided is a postponement of the sale before it happens.”) (emphasis in original).
7

The Court notes a number of district courts have held claims under section 2923.5
are preempted by the Home Owners Loan Act (“HOLA”). See, e.g., Omega v. Wells Fargo
& Co., No. C 11-2621 JSW, 2011 WL 4345046 at *5 (N.D. Cal. Sept. 14, 2011) (holding
2923.5 is preempted; collecting cases). Citimortgage has not asserted it is covered by
HOLA, let alone submitted documentation sufficient to permit the Court to so find.
8

Here, plaintiffs fail to satisfy the threshold requirement that the claim be asserted in
a verified complaint. For this reason alone, the claim is subject to dismissal. See Briosos
v. Wells Fargo Bank, 737 F. Supp. 2d 1018, 1031-32 (N.D. Cal. 2010).
7

Here, plaintiffs fail to allege they have tendered, or are able to tender, the proceeds

1
2

of the Subject Loan. Moreover, in their opposition, plaintiffs essentially concede the cannot

3

do so. (See Opp. at 6:24-27 (“[T]he fact that [p]laintiffs have alleged difficulty in paying the

4

modified $4,449.65 monthly payments . . . illustrates the impossibility of such a demand.”)

5

Under such circumstances, leave to amend to allege ability to tender would be futile.9
Accordingly, plaintiffs’ Fourth Cause of Action will be dismissed without leave to

6
7

amend.

8

V.

9

Conclusion
Citimortgage’s motion to dismiss is hereby GRANTED and the FAC is hereby

10

DISMISSED with leave to amend the Third Cause of Action. Plaintiffs’ Second Amended

11

Complaint, if any, shall be filed no later than January 13, 2012.

12

IT IS SO ORDERED.

13
14

Dated: December 21, 2011
MAXINE M. CHESNEY
United States District Judge

15
16
17
18
19
20
21
22
23
24
25
26
27
28

9

Plaintiffs argue the Court has discretion to forego the tender requirement in order
to “accommodate the equities.” (See Opp. at 7:1-3.) The cases plaintiffs cite in support
thereof, however, do not involve actions to quiet title, and, in any event, plaintiffs allege no
facts suggesting the Court should disregard the $680,000 in loan proceeds plaintiffs have
received and permit them to take title free and clear.
8