Sokol et al v. JPMorgan Chase Bank, N.A. et al

Filing 42

ORDER by Judge Edward M. Chen Granting 38 Defendants' Motion to Dismiss and Remanding Action to State Court. (emcsec, COURT STAFF) (Filed on 12/16/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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JEFFREY SOKOL, et al.,

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Plaintiffs,

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ORDER GRANTING DEFENDANTS’
MOTION TO DISMISS AND
REMANDING ACTION TO STATE
COURT

v.

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For the Northern District of California

United States District Court

No. C-13-2153 EMC

JPMORGAN CHASE BANK, N.A., et al.,

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Defendants.
___________________________________/

(Docket No. 38)

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I.

INTRODUCTION

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Currently before the Court is the motion to dismiss Plaintiff’s’ First Amended Complaint

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filed by JPMorgan Chase Bank, N.A., U.S. Bank, N.A., Citibank, N.A., Christiana Bank & Trust

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Company, and California Reconveyance Company (“Defendants”). The Court finds this matter

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suitable for disposition without a hearing and thus VACATES the hearing on the motion set for

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December 19, 2013. For the following reasons, Defendant’s motion is GRANTED as to Plaintiff’s

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federal cause of action. The Court declines to exercise supplemental jurisdiction over Plaintiffs’

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state law claims and REMANDS these causes of action to the Superior Court of California for the

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County of Contra Costa.

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II.

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FACTUAL & PROCEDURAL BACKGROUND1

On or about January 12, 2007, Plaintiffs Jeffrey and Valerie Sokol purchased a house at 5416
Blackhawk Drive, Danville, California 94506 (“Property”). First Amended Complaint (“FAC”)

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No. 37.

The following factual allegations are taken from Plaintiffs’ First Amended Complaint. Dkt.

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¶ 11. To effectuate this purchase, Plaintiffs executed a promissory note (“Note”) in the amount of

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$2,325,000.00 (the “Loan”). Id. The Loan was a “thirty (30) year adjustable rate loan through

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WAMU, with an expressed interest rate of 8.033%. The monthly payment for the first two (2)

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months was $6,708.86 (excluding taxes and insurance), thereafter the payment could change on a

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monthly basis based on the MTA Index.” Id. In connection with the Loan, WAMU took a Deed of

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Trust which it recorded with the Contra Costa County Recorder’s Office on January 23, 2007 (“First

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DOT”). Id. ¶ 12. On the same day, and as part of the Loan transaction, Plaintiffs obtained a second

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mortgage in the amount of $400,000.00, secured by a second deed of trust recorded with the Contra

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Costa County Recorder’s Office (“Second DOT”). Id. ¶ 13.
After the origination and funding of the Loan, WAMU attempted to sell and transfer the Note

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For the Northern District of California

United States District Court

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into the WMALT 2007-OA3 Trust. Id. ¶ 15. U.S. Bank is alleged to have been the trustee for the

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WMALT 2007-OA3 Trust. Id. ¶ 16. Plaintiffs conclusorily allege that “WAMU/CHASE violated

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the express terms of the [Pooling and Servicing Agreement]” and that the “Note and Deed of Trust

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were not properly assigned to Defendant in accordance with their own Pooling and Servicing

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Agreement.” Id. ¶ 23-24.

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Plaintiffs allege that after the “attempted transfer” of the Loan to this trust, “WAMU only

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retained servicing rights and not a beneficial interest in the Deed.” Id. ¶ 17. WAMU’s servicing

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rights were transferred to Chase by way of a Purchase and Assumption Agreement in which Chase

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acquired WAMU’s assets. Id. Despite the failed securitization, Plaintiffs allege that WAMU was

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“paid the balance owed on the NOTE by the sponsor/seller and therefore no longer has an interest in

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the Note.” Id. ¶ 18.2 After the attempted transfer of the loans to the respective trusts, Plaintiffs

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allege that Chase continued to act as the beneficiary of both loans. Id. ¶ 22. Plaintiffs claim that

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Chase cannot be the beneficiary because the loans were improperly sold to the WMALT 2007-OA3

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Trust and HE2 Trust. Id.

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Plaintiffs allege that U.S. Bank (as trustee for the WMALT Series 2007-OA3 Trust) and
Citibank and Christiana (as trustees for the Series 2007-HE2 Trust) have no valid and enforceable

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Plaintiffs similarly allege that there was an attempted transfer of their second mortgage into
the HE2 Trust, with Citibank and Christiana Bank serving as trustees. Id. ¶ 19.

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secured claims against the Property. Id. ¶ 29. Specifically, Plaintiffs claim that the U.S. Bank and

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Citibank cannot show: (1) “There was a complete and unbroken chain of endorsements and transfers

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of the Note from and to each party to the securitization transaction”; (2) “That it has actual physical

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possession of the Note at that point in time, when all endorsements and assignments had been

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completed” and (3) “That there was a complete and unbroken chain of endorsements and transfers of

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the Deed of Trust from and to each party to the securitization transaction.” Id.

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After making payments on the loans for four years, on September 6, 2011, Cal Reconveyance

Chase is alleged to have transferred or sold the First DOT to U.S. Bank through an “Assignment of

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Deed of Trust. Id. ¶ 89. This assignment “purports to transfer all beneficial interest under the [First

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For the Northern District of California

Company recorded a Notice of Default (“NOD”) against the Property. Id. ¶ 88. On this same day,

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United States District Court

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DOT], together with the Note, from Chase to U.S. Bank.” Id. ¶ 90.

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Plaintiffs allege one federal cause of action – an alleged violation of the Truth in Lending

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Act (“TILA”), 15 U.S.C. § 1641(g). Id. ¶ 141-153. Plaintiffs allege that if the Court were to

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determine that Chase was the beneficiary when it assigned the First DOT to U.S. Bank in September

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2011, then § 1641(g) applied to U.S. Bank. Id. ¶ 143. In violation of § 1641(g), U.S. Bank failed

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to provide Plaintiffs with written notice of the transfer of the First DOT within 30 days. Id. ¶ 145.

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Plaintiffs allege they did not discover the violation of § 1641 “until they retained counsel and

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discovered that the Loans had been assigned numerous times.” Id. ¶ 150. Plaintiffs allege that

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Chase’s “continued representation that it was the true creditor even in the Notice of Default caused

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Plaintiff to be unaware of U.S. Bank’s purported involvement in the loan.” Id. ¶ 153.

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III.
A.

DISCUSSION

Plaintiff’s TILA Claim is Barred by the Statute of Limitations

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Defendants argue that Plaintiffs’ TILA action is barred by the statute of limitations. Dkt. No.

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38, at 19. Civil actions under TILA are governed by a one year statute of limitations. See 15 U.S.C.

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§ 1640(e) (“[A]ny action under this section may be brought . . . within one year from the date of the

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occurrence of the violation . . . .”); see also McGough v. Wells Fargo Bank, N.A., No. C12-0050

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TEH, 2012 WL 2277931, at *5 (N.D. Cal. June 18, 2012). Accordingly, the statute of limitations

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began to run on Plaintiffs’ TILA claim 30 days after the transfer that triggered the disclosure

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obligation. See Connell v. CitiMortgage, Inc., No. 11-0443-WS-C, 2012 WL 5511087, at *8 n.13

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(S.D. Ala. Nov. 13, 2012); see also McDonald v. OneWest Bank, FSB, No. C10-1952 RSL, 2012

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WL 555147, at *3 (W.D. Wash. Feb. 21, 2012) (same).

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In the TILA context, equitable tolling serves to “suspend the limitations period until the

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borrower discovers or had reasonable opportunity to discovery the fraud or nondisclosures that form

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the basis of the TILA action.” King v. California, 784 F.2d 910, 915 (9th Cir. 1986). In other

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words, equitable tolling applies “’in situations where, despite all due diligence, the party invoking

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equitable tolling is unable to obtain vital information bearing on the existence of the claim.’”

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Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1045 (9th Cir. 2011) (quoting SocopGonzalez v. I.N.S., 272 F.3d 1176, 1193 (9th Cir. 2001)). The Ninth Circuit has indicated that

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For the Northern District of California

United States District Court

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“[e]quitable tolling is generally applied in situations ‘where the claimant has actively pursued his

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judicial remedies by filing a defective pleading during the statutory period, or where the complainant

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has been induced or tricked by his adversary’s misconduct into allowing the filing deadline to

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pass.’” O’Donnell v. Vencor, Inc., 465 F.3d 1063, 1068 (9th Cir. 2006) (quoting Irwin v. Dep’t of

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Veterans Affairs, 498 U.S. 89, 95 (1990)); see also Stoll v. Runyon, 165 F.3d 1238, 1242 (9th Cir.

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1999) (“Equitable tolling applies when the plaintiff is prevented from asserting a claim by wrongful

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conduct on the part of the defendant, or when extraordinary circumstances beyond the plaintiff’s

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control made it impossible to file a claim on time.”).

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Plaintiffs base their TILA claim on the September 6, 2011 assignment of the First DOT from

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Chase to U.S. Bank. FAC ¶ 143. Accordingly, the statute of limitations began to run on Plaintiffs’

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TILA claim beginning on October 6, 2011 – 30 days after the alleged assignment occurred.

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However, Plaintiff’s state law complaint was not filed until April 2013. Dkt. No. 1, at 11. Plaintiffs

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argue, however, that they are entitled to equitable tolling. Dkt. No. 39, at 8-10. Specifically,

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Plaintiffs argue that they “did not discover that US Bank and CBT claimed to own the Note until

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they obtained an audit on the property.” Dkt. No. 39, at 9. Plaintiffs state that they “could have

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checked the public record for the assignment,” but that this would have not have been “reasonably

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diligent” but, rather, would have been “well over diligent.” Id. at 10.

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The Court rejects Plaintiffs’ argument and finds that equitable tolling does not apply.

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Defendants recorded the assignment of the First DOT. See FAC, Ex. D. Numerous courts from

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around the country have expressly rejected the application of equitable toling in the context of

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§ 1641(g) where the underlying assignment was recorded. See, e.g., Brown v. U.S. Bank Nat’l

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Ass’n, No. C12-04587 HRL, 2013 WL 4538131, at *2 (N.D. Cal. Aug. 23, 2013) (“Plaintiff

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concedes that the transfer was a matter of public record, and provides no reason, other than the

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alleged violation itself, to equitably toll the statute of limitations.”); Dela Cruz, 2013 WL 1759001,

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at *4 (“Here, there is no basis to equitably toll the statute of limitations . . . since the recording of the

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Assignment provided Plaintiffs with constructive notice of the Assignment for the entire duration of
the statute-of-limitations period.”); Galvin v. EMC Mortgage Corp., No. 12-cv-320-JL, 2013 WL

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For the Northern District of California

United States District Court

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1386614, at *15 (D.N.H. Apr. 4, 2013) (“The Galvins themselves allege in their complaint that the

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assignment in question was recorded . . . . In other words, from that date forward, Mellon made no

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secret of its possession of the Galvins’ mortgage; the assignment was a matter of public record that

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the Galvins easily could have discovered had they desired.”); Salewske v. Citibank, N.A., No. 12-

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CV_12580, 2012 WL 6840572, at *9 (E.D. Mich. Oct. 9, 2012) (holding that the “public recording

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[of an assignment] defeats any claim that Defendant concealed its conduct”).

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Accordingly, Defendants made no secret of the assignment of Plaintiffs First DOT, having

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publically recorded it with the county recorder’s office. In addition, the recording of this assignment

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provided Plaintiffs with constructive notice of the assignment. See Cal. Civ. Code § 2934 (“Any

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assignment of a mortgage and any assignment of the beneficial interest under a deed of trust may be

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recorded, and from the time the same is filed for record operates as constructive notice of the

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contents thereof to all persons . . . .”); see also Dela Cruz, 2013 WL 1759001, at *4 (declining to

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equitably the statute of limitations in a TILA action because the recording of the assignment gave

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plaintiff constructive notice of the assignment); Aguirre v. Cal-Western Reconveyance Corp., No.

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CV 11-6911 CAS, 2012 WL 273753, at *6 (C.D. Cal. Jan. 30, 2012) (recognizing that recording an

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assignment “‘operates as constructive notice of the contents thereof, to all persons,’ including

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plaintiff” (citation omitted)).

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While not raised by Plaintiffs in their opposition, the First Amended Complaint appears to

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allege in two places that Defendants “concealed” facts preventing Plaintiffs from being aware of the

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TILA violation. Specifically Plaintiffs allege:

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“This is due to Defendants [sic] concealment of the facts. Defendants purported to be the

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beneficiary under the guise that they had acquired the interest during the securitization

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scheme. However, it was only once it was concluded that the securitization scheme failed

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that it became apparent that alternatively the loan may have been transferred via an

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assignment.” FAC ¶ 96.

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“Furthermore, Chase continued to represent that it was the investor and owner of the loan
thereby deceiving Plaintiff into believing it was the true creditor. Chases [sic] continued

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For the Northern District of California

United States District Court

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representation that it was the true creditor even in the Notice of Default caused Plaintiff to be

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unaware of US Bank’s purported involvement in the loan.” Id. ¶¶ 151, 152.

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“When . . . equitable tolling is based on a theory of fraudulent misrepresentation, it must be plead

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according to the heightened pleading standard contained in Rule 9(b).” Ireland v. Centralbanc

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Mortg. Corp., No. 5:12-cv-02991 EJD, 2012 WL 6025764, at *3 (N.D. Cal. Dec. 4, 2012); see also

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Angel v. BAC Home Loan Serv., LP, No. 10-00240 HG-LEK, 2010 WL 4386775, at *4 (D. Hawai’i

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Oct. 26, 2010) (same). The Court finds that these two, conclusory, allegations do not meet the

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pleading requirements of Rule 9(b) and do not create a basis for equitable tolling. In light of the

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recording of the assignment of the First DOT and the fact that Plaintiffs received a Notice of

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Default, Plaintiffs have failed to explain with sufficient factual detail why they had no reasonable

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opportunity to discover the alleged TILA notice violation within the statutory period.

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For the foregoing reasons, the Court finds that Plaintiffs’ TILA claim is barred by the statute

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of limitations. The Court has previously dismissed Plaintiffs’ TILA claim with instructions to allege

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in their amended complaint “specific facts demonstrating that equitable tolling should apply in this

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case.” Dkt. No. 33, at 2. Plaintiffs have failed to do so. Accordingly, Plaintiffs’ TILA claim is

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DISMISSED, with prejudice.

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B.

Plaintiff’s Remaining State Law Claims
Having dismissed Plaintiffs’ federal claim, the Court must determine whether to continue to

district court may decline to exercise supplemental jurisdiction if “the district court has dismissed

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all claims over which it has original jurisdiction.” 28 U.S.C. § 1367(c). When deciding whether to

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continue exercising supplemental jurisdiction, a district court should be guided by consideration of a

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balance of the factors of “‘judicial economy, convenience, fairness, and comit.’” Oliver v. Ralphs

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Grocery Co., 654 F.3d 903, 911 (9th Cir. 2011) (quoting Carnegie-Mellon Univ. v. Cohill, 484 U.S.

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343, 350 n.7 (1988)). Given the early stage of proceedings and California’s interest in applying its

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own law, the Court declines to exercise supplemental jurisdiction over Plaintiffs’ state law claims

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For the Northern District of California

exercise supplemental jurisdiction over Plaintiffs’ state law claims. Under 28 U.S.C. § 1367(c), a

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United States District Court

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and REMANDS this action to California state court. See Carnegie-Melon, 484 U.S. at 350

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(“[W]hen the federal-law claims have dropped out of the lawsuit in its early stages and only state-

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law claims remain, the federal court should decline the exercise of jurisdiction by dismissing the

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case without prejudice.” (foonote omitted)).

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IV.

CONCLUSION

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Plaintiffs’ TILA claim is DISMISSED with prejudice. The Court declines to exercise

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supplemental jurisdiction over Plaintiff’s state law claims and these claims are REMANDED to the

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Superior Court of California for the County of Contra Costa.

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This order disposes of Docket No. 38.

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IT IS SO ORDERED.

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Dated: December 16, 2013

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_________________________
EDWARD M. CHEN
United States District Judge

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