Lee v. Thornburg Mortgage Home Loans Inc et al

Filing 44

ORDER by Judge Nathanael M. Cousins SETTING ASIDE DEFAULT AND DENYING MOTIONS FOR DEFAULT JUDGMENT AS TO BANK OF AMERICA AND THORNBURG Re: Dkt. Nos. 24, 27, 28, 29, 35. (nclc2, COURT STAFF) (Filed on 4/29/2014)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN FRANCISCO DIVISION

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11 SUSAN SHELDON LEE,

Case No. 14-cv-00602 NC

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ORDER SETTING ASIDE DEFAULT
AND DENYING MOTIONS FOR
DEFAULT JUDGMENT AS TO BANK
OF AMERICA AND THORNBURG

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Plaintiff,
v.

14 THORNBURG MORTGAGE HOME
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LOANS INC., and others,

Re: Dkt. Nos. 24, 27, 28, 29, 35

Defendants.

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Pending before the Court are motions for default judgment by pro se plaintiff Susan

19 Lee against three of the defendants in this matter, Thornburg Mortgage Home Loans Inc.,
20 TMST Home Loans, Inc. formerly known as Thornburg Mortgage Home Loans Inc.
21 (collectively, “Thornburg”), and Bank of America, N.A., as well as those defendants’
22 motions to set aside default. For the reasons set forth below, the Court finds that there is
23 good cause to set aside default, and, therefore, DENIES WITHOUT PREJUDICE the
24 motions for default judgment.
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I. BACKGROUND
On February 7, 2014, Lee filed her complaint in this case. The complaint names as

27 defendants Thornburg Mortgage Home Loans Inc. “in its capacity as originating lender and
28 purported mortgage servicer,” TMST Home Loans, Inc. formerly known as Thornburg
Case No. 14-cv-00602 NC
ORDER SETTING ASIDE DEFAULT;
DENYING DEFAULT JUDGMENT

1 Mortgage Home Loans Inc. “as purported servicer,” Select Portfolio Servicing Inc. (“SPS”)
2 “as purported servicer,” Mortgage Electronic Registration Systems Inc. (“MERS”) as
3 “purported Nominee for Thornburg,” Quality Loan Services Corporation (“Quality”) “as
4 purported Trustee under the Deed of Trust,” U.S. Bank National Association “(successor to
5 Bank of America, N.A., successor by merger to LaSalle Bank N.A.), as Trustee, on behalf
6 of the holders of the Thornburg Mortgage Securities Trust 2007-4 Mortgage Loan Pass7 Through Certificates, Series 2007-4; (in its capacity as purported assignee of Plaintiff’s
8 Deed of Trust),” and Bank of America, N.A. “successor by merger to LaSalle Bank N.A., as
9 former Trustee, on behalf of the holders of the Thornburg Mortgage Securities Trust 2007-4
10 Mortgage Loan Pass-Through Certificates, Series 2007-4.” Dkt. No. 1 at 7.
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Lee alleges that, on June 28, 2007, she executed a deed of trust on her property at 20

12 Kingsland Place, Oakland, California, as security for a loan. Dkt. No. 1 ¶¶ 5, 18. Lee
13 further alleges that she “timely paid her mortgage payments when she began experiencing
14 an unforeseen financial hardship.” Id. ¶ 19. Lee alleges that “there was an attempt to
15 securitize the Mortgage by assigning and transferring the Mortgage” to the Thornburg trust
16 “but the mortgage loan was never actually assigned and transferred.” Id. ¶ 22. Lee claims
17 that this “fatal defect renders Defendants third-party strangers to the underlying debt
18 obligation without the power or right to demand payment, declare default, negotiate her
19 Loan, and foreclose on her Property.” Id. ¶¶ 30, 39, 85. Lee further alleges that the
20 “failure of Defendants to assign her mortgage to LaSalle Bank as trustee of the Thornburg
21 Trust, before the closing date of the trust or at any time, would not entitle [Bank of
22 America] and/or U.S. bank to be the successor trustee due to the fact at no time any proper
23 assignment was ever made to LaSalle Bank.” Id. ¶ 37. Lee alleges that defendants’
24 “fabricated Assignment of Deed of Trust,” that “purports to assign from MERS (as nominee
25 for Thornburg Mortgage Home Loans Inc.), to U.S Bank for value received, all beneficial
26 interest under said Deed of Trust,” is void. Id. ¶ 41.
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Lee’s complaint asserts nine causes of action, against all defendants unless otherwise

28 noted, for: (1) Declaratory Relief; (2) Quasi Contract; (3) Negligence; (4) violations of the
Case No. 14-cv-00602 NC
ORDER SETTING ASIDE DEFAULT;
DENYING DEFAULT JUDGMENT

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1 Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692; (5) violations of the
2 California Business and Professions Code § 17200; (6) violations of the Truth in Lending
3 Act (“TILA”), 15 U.S.C. § 1641(g) (against U.S. Bank and Doe defendants); (7) violations
4 of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962;
5 (8) Fraud; and (9) Accounting. Dkt. No. 1. The relief sought by Lee includes no less than
6 $5,000,000 in damages, and “an order finding that Defendants have no legally cognizable
7 rights as to Plaintiff, the Property, Plaintiff's Promissory Note, Plaintiff’s Deed of Trust or
8 any other matter based on contract or any of the documents prepared by Defendants,
9 tendered to and executed by Plaintiff.” Id. at 48.
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On March 5, 2014, Quality moved to dismiss the complaint. Dkt. No. 8. After

11 obtaining a brief extension of their time to respond to the complaint from the Court,
12 defendants SPS, MERS, and U.S. Bank, identified as the successor to Bank of America,
13 filed a motion to dismiss the complaint on March 13, 2014. Dkt. No. 14.
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On March 18, 2014, Lee filed requests for entry of default against Thornburg and

15 Bank of America. Dkt. Nos. 16, 17, 18. On March 19, 2014, the Clerk of the Court entered
16 default against those defendants. Dkt. No. 19. On March 20, 2014, counsel for Bank of
17 America as Trustee filed a notice of appearance, stating that Bank of America “intends to
18 vigorously defend this action and will immediately seek to vacate and set aside any notice
19 of entry of default entered against it.” Dkt. No. 20. On March 21, 2014, Bank of America
20 filed its motion to set aside default. Dkt. No. 24. On the same day, Lee filed motions for
21 default judgment as to Bank of America and Thornburg. Dkt. Nos. 27, 28, 29. On March
22 24, 2014, counsel for Thornburg filed a notice of appearance, stating Thornburg’s intent to
23 defend the action and to seek to vacate and set aside entry of default. Dkt. No. 31. On
24 April 2, 2014, Thornburg moved to set aside default. Dkt. No. 35. On April 3, 2014, Bank
25 of America and Thornburg filed oppositions to Lee’s motions for default judgment. Dkt.
26 Nos. 36, 37.
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The Court scheduled the motions for default judgment and the motions to set aside

28 default to be heard on the same day, prior to hearing the pending motions to dismiss the
Case No. 14-cv-00602 NC
ORDER SETTING ASIDE DEFAULT;
DENYING DEFAULT JUDGMENT

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1 complaint. Dkt. No. 38. The Court subsequently took the motions for default judgment and
2 the motions to set aside default under submission, finding them suitable for disposition
3 without oral argument. See Civ. L.R. 7-1(b).
The Court has federal question jurisdiction over the FDCPA, TILA, and RICO claims

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5 under 28 U.S.C. § 1331, and supplemental jurisdiction over the state law claims under 28
6 U.S.C. § 1367. All parties have consented to the jurisdiction of a magistrate judge under 28
7 U.S.C. § 636(c). Dkt. Nos. 4, 11, 13, 23, 32.
II. LEGAL STANDARD

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Pursuant to Federal Rule of Civil Procedure 55(c), a district court “may set aside an

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10 entry of default for good cause.” Fed. R. Civ. P. 55(c). To determine whether a party has
11 demonstrated “good cause,” a court must consider three factors: (1) whether the party
12 seeking to set aside the default engaged in culpable conduct that led to the default;
13 (2) whether it had no meritorious defense; or (3) whether reopening the default judgment
14 would prejudice the other party. United States v. Mesle, 615 F.3d 1085, 1091 (9th Cir.
15 2010).
The district court has discretion to determine whether a party has demonstrated “good

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17 cause” to set aside an entry of default. Madsen v. Bumb, 419 F.2d 4, 6 (9th Cir. 1969).
18 “The court’s discretion is especially broad where, as here, it is entry of default that is being
19 set aside, rather than a default judgment.” Mendoza v. Wight Vineyard Mgmt., 783 F.2d
20 941, 945 (9th Cir. 1986). “Where timely relief is sought from a default . . . and the movant
21 has a meritorious defense, doubt, if any, should be resolved in favor of the motion to set
22 aside the [default] so that cases may be decided on their merits.” Id. at 945-46 (quoting
23 Schwab v. Bullock’s Inc., 508 F.2d 353, 355 (9th Cir. 1974)); Eitel v. McCool, 782 F.2d
24 1470, 1472 (9th Cir. 1986) (“[T]he general rule [is] that default judgments are ordinarily
25 disfavored. Cases should be decided upon their merits whenever reasonably possible.”).
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Case No. 14-cv-00602 NC
ORDER SETTING ASIDE DEFAULT;
DENYING DEFAULT JUDGMENT

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III. DISCUSSION

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A consideration of the three factors in this case supports setting aside the default

3 entered against Bank of America and Thornburg. First, “a defendant’s conduct is culpable
4 if he has received actual or constructive notice of the filing of the action and intentionally
5 failed to answer.” TCI Group Life Ins. Plan v. Knoebber, 244 F.3d 691, 697 (9th Cir. 2001)
6 (quoting Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988)). “[I]n
7 this context the term ‘intentionally’ means that a movant cannot be treated as culpable
8 simply for having made a conscious choice not to answer; rather, to treat a failure to answer
9 as culpable, the movant must have acted with bad faith, such as an ‘intention to take
10 advantage of the opposing party, interfere with judicial decisionmaking, or otherwise
11 manipulate the legal process.’” Mesle, 615 F.3d at 1092 (quoting TCI Group, 244 F.3d at
12 697).
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Bank of America argues that there is a reasonable explanation for its failure to file a

14 responsive pleading in that Lee sued both U.S. Bank as Trustee and Bank of America as
15 former Trustee only in their representative capacities for the Trust, and that “counsel
16 reasonably deemed the present Trustee’s motion to dismiss as a response sufficiently
17 protective of the Trust and any Trustee’s interests.” Dkt. Nos. 24 at 9; 24-1 ¶¶ 2, 9. In its
18 motion to set aside default, Thornburg, the originator and original servicer of Lee’s loan,
19 asserts that it has been subject to a Chapter 11 Bankruptcy proceeding since 2009, and that
20 SPS acquired the servicing rights on Lee’s loan from Thornburg in 2010, following a
21 motion and order initiated by the Thornburg Bankruptcy Trustee. Dkt. Nos. 35 at 8; 35-1
22 ¶¶ 2, 5; 35-1 at 8-19, 21-22. Furthermore, Thornburg argues that SPS, as current servicer,
23 and the present Trustee for the Trust, U.S. Bank, have already defended the action by filing
24 a motion to dismiss. See Dkt. No. 14. Thornburg’s motion to set aside default further
25 explains that, in investigating the file in this case, counsel for SPS discovered evidence of
26 specific agreements between SPS and Thornburg, under which SPS may assume the defense
27 of Thornburg in this matter, and met with the Thornburg Bankruptcy Trustee to confirm this
28 understanding. Dkt. Nos. 35 at 8; 35-1 ¶¶ 2-3, 8-10.
Case No. 14-cv-00602 NC
ORDER SETTING ASIDE DEFAULT;
DENYING DEFAULT JUDGMENT

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While Bank of America and Thornburg have not provided any authority for the

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2 proposition that they do not need to respond to the complaint in this case, the Court finds
3 that they have adequately demonstrated that their failure to respond was not in bad faith.
4 Moreover, the record shows that Bank of America and Thornburg acted promptly in moving
5 to set aside default. Accordingly, the Court finds that they have not engaged in culpable
6 conduct that led to the default.
Second, “[a] defendant seeking to vacate a default judgment must present specific

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8 facts that would constitute a defense. But the burden on a party seeking to vacate a default
9 judgment is not extraordinarily heavy.” Mesle, 615 F.3d at 1094. “All that is necessary to
10 satisfy the ‘meritorious defense’ requirement is to allege sufficient facts that, if true, would
11 constitute a defense.” Id. The motions to set aside default by Bank of America and
12 Thornburg attach proposed motions to dismiss the complaint on multiple grounds, similar to
13 those already asserted in the other defendants’ pending motions to dismiss. Those grounds
14 include that the complaint is barred by res judicata following the dismissal of prior litigation
15 by Lee, and that the complaint fails to state any claim on which relief may be granted
16 because Lee lacks standing to assert her claim that the assignment of her mortgage loan to
17 the Trust was invalid, and because she failed to allege “tender,” among other reasons. See
18 Dkt. Nos. 24-1 at 9-46; 35-1 at 24-52. The Court has reviewed the proposed motions to
19 dismiss and finds that Bank of America and Thornburg have presented legally cognizable
20 defenses to the complaint.
Finally, the Court examines whether there is any prejudice to plaintiff that results

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22 from setting aside the default. “To be prejudicial, the setting aside of a judgment must
23 result in greater harm than simply delaying resolution of the case. Rather, ‘the standard is
24 whether [plaintiff’s] ability to pursue his claim will be hindered.’” TCI Group, 244 F.3d at
25 701 (quoting Falk v. Allen, 739 F.2d 461, 463 (9th Cir. 1984)). Here, Lee has not filed an
26 opposition to the motions to set aside default. Based on the record before it, the Court finds
27 that there is no evidence of any prejudice to Lee.
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Case No. 14-cv-00602 NC
ORDER SETTING ASIDE DEFAULT;
DENYING DEFAULT JUDGMENT

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IV. CONCLUS ION
C

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Be
ecause the three factor in the goo cause an
t
rs
od
nalysis favor setting asi the entr of
ide
ry

p
ns
ide
ault
merica
3 default pursuant to Rule 55(c), the motion to set asi the defa against Bank of Am
ornburg are GRANTED
D.
4 and Tho

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Th Clerk of the Court is directed to set aside the default of Thornbu Mortgage
he
f
i
t
urg

L
T
me
nc.
y
s
g
6 Home Loans Inc., TMST Hom Loans, In formerly known as Thornburg Mortgage Home
nc.,
nk
rica, N.A.
7 Loans In and Ban of Amer

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Be
ecause defe
endants are no longer in default, L
n
Lee’s motio for defau judgmen are
ons
ult
nt

D
UT
DICE.
9 DENIED WITHOU PREJUD

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Th proposed motions to dismiss by Bank of A
he
d
o
America an Thornbur attached to the
nd
rg

e,
e
11 motions to set aside Dkt. Nos. 24-1 at 9-46; 35-1 at 24-52, are deemed filed as of the date
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o
h
ay
4,
y
otions to dis
smiss.
12 of this order. Lee has until Ma 14, 2014 to file any response to these mo
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plies are due by May 21 2014. Th Court wi hold a he
e
1,
he
ill
earing on th
hese motion on
ns
13 Any rep
3
,
m
loor, U.S. D
District Cou 450 Gol
urt,
lden
14 May 28, 2014, at 1:00 p.m. in Courtroom A, 15th Fl
4
venue, San Francisco, California. The hearin on the m
F
C
ng
motions to di
ismiss filed by
d
15 Gate Av
5
,
8
M
Bank, Dkt. N 14, is co
No.
ontinued fro
om
16 Quality, Dkt. No. 8, and by MERS, SPS, and U.S. B
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m.
17 May 14 to May 28 at 1:00 p.m
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By May 7, 20 Thornb
y
014,
burg must file a furthe brief addr
f
er
ressing the issue of wh
hether a

t
endant is req
quired or ap
ppropriate d to the p
due
pending
19 stay of this case as to that defe
9
ptcy. Any other party may file a response to Thornburg’s brief with 7 days o its
o
m
r
hin
of
20 bankrup
0
T
w
s
a
ng
motions to d
dismiss.
21 filing. The Court will address this issue at the hearin on the m
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IT IS SO OR
T
RDERED.

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Date: April 29, 2014
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____
__________
__________
_____
Nath
hanael M. C
Cousins
Unit States M
ted
Magistrate J
Judge

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Case No. 14-cv-0060 NC
02
ORDER SETTING ASIDE DEF
R
A
FAULT;
DENYIN DEFAULT JUDGM
NG
MENT

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