Chua v. America's Wholesale Lender

Filing 27

ORDER Granting 21 Motion to Dismiss With Leave to Amend: If Plaintiff chooses to file a second amended complaint, he must file and serve it no later than April 6, 2010. Defendants shall file and serve any response to the second amended complaint within the time set in Rule 15(a)(3). Signed by Judge M. James Lorenz on 3/17/2010. (All non-registered users served via U.S. Mail Service)(mjj) (av1).

1 2 3 4 5 6 7 8 9 10 11 ROMERO CHUA, 12 13 v. 14 BARRATT AMERICAN et al., 15 16 17 Defendants. Plaintiff, ) ) ) ) ) ) ) ) ) ) Civil No. 09cv105-L(WVG) ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

Plaintiff, proceeding pro se, seeks to rescind a mortgage, receive reimbursement of the

18 closing costs and accrued interest, and prevent Defendants from encumbering, selling, 19 hypothecating or transferring the mortgaged property. Defendant Countrywide Home Loans, 20 Inc. ("Countrywide") removed this action from state court based on federal question jurisdiction 21 and filed a motion to dismiss with prejudice pursuant to Federal Rule of Civil Procedure 22 12(b)(6), or in the alternative, for a more definite statement pursuant to Rule 12(e). Plaintiff did 23 not file an opposition. For the reasons which follow, Countrywide's motion is GRANTED 24 WITH LEAVE TO AMEND. 25 In his First Amended Complaint Plaintiff alleges that he purchased a residence at 978

26 Mira Lago Way in San Marcos, California ("Property"). In March 2006 Plaintiff borrowed 27 funds from Countrywide to purchase the Property, and secured the repayment of the loan with a 28 Deed of Trust against the Property. He alleges that Defendants, Barratt American, the real estate
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1 agent and broker as well as a loan broker associated with the purchase, and Countrywide, the 2 lender, violated the Home Ownership and Equity Protection Act, 15 U.S.C. §§ 1602, 1604, 1610, 3 1639-1641 & 1647-1648 ("HOEPA"), the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. 4 ("TILA"), the Real Estate Settlement Procedure Act, 12 U.S.C. § 2601 et seq. ("RESPA"), the 5 Equal Credit Opportunity Act, 15 U.S.C. §§ 1691 et seq. ("ECOA"), and California Business 6 and Professions Code Section 17500. 7 Countrywide moves to dismiss all causes of action for failure to state a claim upon which

8 relief can be granted. A Rule 12(b)(6) motion to dismiss tests the sufficiency of the complaint. 9 Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "While a complaint attacked by a Rule 10 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to 11 provide the grounds of his entitlement to relief requires more than labels and conclusions, and a 12 formulaic recitation of the elements of a cause of action will not do. Factual allegations must be 13 enough to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 14 550 U.S. 544, 555 (2007) (internal quotation marks, brackets and citations omitted). In 15 reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual 16 allegations and must construe them in the light most favorable to the nonmoving party. Cahill v. 17 Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions need not be taken 18 as true merely because they are cast in the form of factual allegations. Roberts v. Corrothers, 19 812 F.2d 1173, 1177 (9th Cir. 1987); W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 20 1981). Similarly, "conclusory allegations of law and unwarranted inferences are not sufficient to 21 defeat a motion to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 22 1998). 23 Countrywide argues that HOEPA does not apply to Plaintiff's loan because the loan was a

24 residential mortgage transaction, which is exempt from HOEPA. 15 U.S.C. § 1602(aa). Among 25 other things, a residential mortgage transaction is for the purpose of "financ[ing] the acquisition 26 or initial construction of such dwelling." Id. § 1602(w). Plaintiff alleged that he borrowed from 27 Countrywide in order to purchase the Property. (First Am. Compl. at 2-3.) Accordingly, 28 Plaintiff's first cause of action for HOEPA violations is dismissed with prejudice.
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Countrywide next contends that to the extent Plaintiff seeks damages under TILA, the

2 claim is time barred. The applicable statute of limitations is "one year from the date of the 3 occurrence of the violation." 15 U.S.C. § 1640(e). "[T]he limitations period in Section 1640(e) 4 runs from the date of consummation of the transaction but . . . the doctrine of equitable tolling 5 may, in the appropriate circumstances, suspend the limitations period until the borrower 6 discovers or had reasonable opportunity to discover the fraud or nondisclosures that form the 7 basis of the TILA action." King v. California, 784 F.2d 910, 915 (9th Cir. 1986). Because the 8 transaction was consummated in 2006, the statute of limitations has long expired. Since Plaintiff 9 has not filed an opposition, the court has no basis to conclude that there are grounds for equitable 10 tolling for a sufficient period of time to make this action timely. 11 To the extent Plaintiff requests rescission under TILA, Countrywide argues that

12 Plaintiff's transaction does not meet the criteria for the rescission remedy to apply. Like 13 HOEPA, the TILA rescission remedy excludes residential mortgage transactions as defined in 15 14 U.S.C. § 1602(w). 15 U.S.C. § 1635(e)(1). Rescission under TILA is not available to Plaintiff 15 for the same reasons HOEPA does not apply to this case. Based on the foregoing, Plaintiff's 16 TILA claim is dismissed with prejudice. 17 Countrywide also seeks dismissal of the RESPA claim, arguing that any claims brought

18 under 12 U.S.C. Sections 2607 (Prohibition against kickbacks and unearned fees) and 2608 19 (Title companies, liability of seller) are time barred. RESPA provides a one-year statute of 20 limitations for these claims, which begins to run on "the date of the occurrence of the violation." 21 12 U.S.C. § 2614. "The date of the occurrence" is interpreted to refer to the closing. Snow v. 22 First Am. Title Ins. Co., 332 F.3d 356, 359 (5th Cir. 2003). The loan transaction between 23 Countrywide and Plaintiff closed in March 2006. Accordingly, to the extent the RESPA claim is 24 based on sections 2607 and 2608, it is barred by the statute of limitations and dismissed with 25 prejudice. 26 RESPA also provides for jurisdiction in the courts over section 2605 violations. Section

27 2605 requires disclosure and notice of assignments, sales or transfers of loan servicing. 12 28 U.S.C. 2605(a) & (b). Plaintiff alleges, albeit in the context of his HOEPA claim, that
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1 Defendants violated the law by selling or otherwise assigning the loan without providing the 2 requisite notice. (First Am. Compl. at 5.) These allegations are incorporated by reference into 3 the RESPA claim. (Id. at 6.) Although Plaintiff does not expressly reference RESPA but refers 4 to other statutes, it appears that Plaintiff intended to assert a RESPA violation as well. The 5 statute of limitations for section 2605 violations is three years. 12 U.S.C. § 2614. This action 6 was filed on September 15, 2008; accordingly, a section 2605 claim is not barred by the statute 7 of limitations. 8 However, to the extent Plaintiff intended to state a section 2605 claim, he does not allege

9 sufficient facts to meet the notice pleading requirements of Rule 8(a) of Federal Rules of Civil 10 Procedure. For example, he does not affirmatively allege that his loan was sold or assigned, and 11 he does not identify the transferee. Although Rule 8 does not require that the complaint include 12 all facts necessary to carry the plaintiff's burden, it must allege plausible grounds to infer the 13 existence of a claim for relief. Al-Kidd v. Ashcroft, 580 F.3d 949, 977 (9th Cir. 2009). This calls 14 for enough facts to raise a reasonable expectation that discovery will reveal evidence to prove 15 that claim. Id. Plaintiff's complaint falls short of this requirement. Accordingly, to the extent 16 Plaintiff intends to assert a claim under section 2605, the claim is dismissed. 17 Plaintiff's fourth cause of action, which Countrywide moves to dismiss, alleges violations

18 of various federal statutes and regulations. With regard to the ECOA, Plaintiff claims that 19 Defendants did not provide an "ECOA Appraisal Notice." Under the ECOA, a creditor is 20 required to provide a copy of an appraisal report to a loan applicant either routinely or, if the 21 creditor does not routinely provide appraisals, upon the applicant's request. 15 U.S.C. 1691(e) 22 & 12 C.F.R. § 202.14(a). If the creditor provides appraisal reports only upon request, it must 23 give the applicant written notice of the right to receive a copy of the appraisal. 12 C.F.R. 24 § 202.14(a)(2)(i). Plaintiff does not allege that he did not receive the appraisal, only that he did 25 not receive notice of his right to request it. (First Am. Compl. at 4, 7.) Accordingly, this claim 26 is not supported by sufficient factual allegations and Countrywide's motion to dismiss it is 27 granted. 28 Plaintiff further claims that Defendants violated 24 C.F.R. Parts 203 and 3500 by failing
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1 to disclose the Yield Spread Premium in the Good Faith Estimate. (First Am. Compl. at 8.) 2 Apparently a premium was paid to the broker for procuring the loan. (See id. Ex. D (Buyer's 3 Final Settlement Statement) at 1.) This claim is based on 12 U.S.C. Section 2607 (Prohibition 4 against kickbacks and unearned fees). It is time barred and therefore dismissed with prejudice. 5 Plaintiff also claims that Defendants violated 24 C.F.R. 3500.21, which addresses

6 mortgage servicing transfers pursuant to RESPA. Plaintiff alleges that Defendants failed to give 7 him notice regarding a mortgage servicing transfer. (First Am. Compl. at 5, 7 (incorporation by 8 reference).) This claim is dismissed for the same reason his RESPA claim pursuant to 12 U.S.C. 9 Section 2605 is dismissed. 10 Plaintiff's fifth cause of action for violation of California Business and Professions Code

11 Section 17500 is based on the theory that Defendants induced him to take the loan by misleading 12 him into believing that he could afford it. (First Am. Compl. at 3-4, 9.) Countrywide argues that 13 Plaintiff does not allege the misleading representations with sufficient specificity. Federal Rule 14 of Civil Procedure 9(b) applies to fraud claims.1 To comply with Rule 9(b), "the circumstances 15 constituting fraud . . . shall be stated with particularity." Fed. R. Civ. P. 9(b). "A pleading is 16 sufficient under Rule 9(b) if it identifies the circumstances constituting fraud so that a defendant 17 can prepare an adequate answer from the allegations." Moore v. Kayport Package Express, Inc., 18 885 F.2d 531, 540 (9th Cir. 1989). In this regard, it is sufficient to plead items such as the time, 19 place and nature of the alleged fraudulent activities. Id. Generally, Rule 9(b) also requires a 20 plaintiff to attribute particular fraudulent statements or acts to individual defendants. Id. 21 However, 22 23 24 25 Countrywide's partial reliance on California law for pleading requirements is in error. Irrespective of the source of subject matter jurisdiction and irrespective of whether the 27 substantive law at issue is state or federal, in federal court, procedure is governed by federal law, particularly when an issue is directly covered by Federal Rules of Civil Procedure. Hanna v. 28 Plumer, 380 U.S. 460 (1965); Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1102 (9th Cir. 2003). 26
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the rule may be relaxed as to matters within the opposing party's knowledge. For example, in cases of corporate fraud, plaintiffs will not have personal knowledge of all the underlying facts. . . . Instances of corporate fraud may also make it difficult to attribute particular fraudulent conduct to each defendant as an individual. To overcome such difficulties in cases of corporate fraud, the

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allegations should include the misrepresentations themselves with particularity and, where possible, the roles of the individual defendants in the misrepresentations.

3 Id. Plaintiff does not allege any facts at all regarding who made the representations, when they 4 were made, and does not specify what the alleged representation was. Countrywide's motion to 5 dismiss the fifth cause of action is therefore granted. 6 Based on the foregoing, Countrywide's motion is GRANTED. Because the motion is

7 granted pursuant to Rule 12(b)(6), the court need not consider Countrywide's arguments for a 8 more definite statement pursuant to Rule 12(e). 9 Plaintiff did not request leave to amend if the motion to dismiss is granted. Nevertheless,

10 the court must consider whether a motion to dismiss should be granted with leave to amend. See 11 Schreiber Distrib. Co. v. Serv-Well Furniture Co., Inc., 806 F.2d 1393, 1401 (9th Cir. 1986). 12 Rule 15 advises the court that leave to amend shall be freely given when justice so requires. 13 Fed. R. Civ. P. 15(a). "This policy is to be applied with extreme liberality." Eminence Capital, 14 LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (internal quotation marks and citation 15 omitted). Dismissal with prejudice and without leave to amend is not appropriate unless it is 16 clear that the complaint could not be saved by amendment. Id. at 1052. 17 Because Plaintiff may be able to adequately allege (1) a RESPA claim pursuant to 12

18 U.S.C. Section 2605 and 24 C.F.R. 3500.21 relating to the disclosure and notice of assignments, 19 sales or transfers of loan servicing; (2) an ECOA clam pursuant to 15 U.S.C. 1691(e) and 12 20 C.F.R. § 202.14(a) relating to Plaintiff's right to receive a copy of an appraisal report, and (3) a 21 claim for false or misleading statements pursuant to California Business and Professions Code 22 Section 17500, Plaintiff is GRANTED LEAVE TO AMEND these claims. Because it appears 23 that amendment of the remaining claims would be futile, they are DISMISSED WITH 24 PREJUDICE. 25 If Plaintiff chooses to amend pursuant to this order, his second amended complaint must

26 be complete in itself without reference to the superseded pleading. See Civil Local Rule 15.1. 27 Defendants not named and claims not re-alleged in the second amended complaint may be 28 considered waived. See King v. Atiyeh, 814 F.2d 565, 567 (9th Cir. 1987).
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Accordingly, it is hereby ORDERED as follows: 1. Defendant Countrywide Home Loans, Inc.'s Motion to Dismiss for Failure to State a

3 Claim upon Which Relief Can Be Granted, or, in the Alternative, for a More Definite Statement 4 is GRANTED WITH LEAVE TO AMEND as stated herein. 5 2. If Plaintiff chooses to file a second amended complaint, he must file and serve it no

6 later than April 6, 2010. Defendants shall file and serve any response to the second amended 7 complaint within the time set in Rule 15(a)(3). 8 9 10 DATED: March 17, 2010 11 12 13 COPY TO: 14 HON. WILLIAM V. GALLO UNITED STATES MAGISTRATE JUDGE 15 ALL PARTIES/COUNSEL 16 17 18 19 20 21 22 23 24 25 26 27 28
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IT IS SO ORDERED.

M. James Lorenz United States District Court Judge