Madrid v. Bank of America Corporation et al
Filing
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ORDER granting Defendant's 34 Motion to Dismiss Plaintiff's Second Amended Complaint with Prejudice. Signed by Judge Anthony J. Battaglia on 07/13/11. (cge)
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UNITED STATES DISTRICT COURT
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SOUTHERN DISTRICT OF CALIFORNIA
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SHARON J. MADRID,
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Plaintiff,
v.
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BANK OF AMERICA CORPORATION
doing business as BAC Home Loan
Servicing, LP, MERS, DOES 1 through 50,
inclusive,
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Case No.: 3:11-cv-0077 AJB (WVG)
ORDER GRANTING DEFENDANTS’
MOTION TO DISMISS PLAINTIFF’S
SECOND AMENDED COMPLAINT
Defendants.
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On April 26, the Court dismissed Plaintiff’s First Amended Complaint (Doc. No. 9) without
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prejudice and granted Plaintiff leave to file a second amended complaint. (Doc. No. 27.) Plaintiff filed
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her Second Amended Complaint (“SAC”) on May 16, 2011. (Doc. No. 28.) Pending is Defendants’
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Motion to Dismiss the SAC, filed June 3, 2011. (Doc. No. 34.)
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FACTUAL BACKGROUND
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On June 7, 2005, Plaintiff obtained a loan from Countrywide Home Loans, Inc. (“Countrywide”)
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and executed a promissory note in the amount of $1,555,000. (SAC Ex. C). As security for the note,
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Plaintiff signed a Deed of Trust that was recorded on June 23, 2005. (SAC Ex. B). The Deed of Trust
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identifies Countrywide as the lender, ReconTrust Company, N.A. (“Recon”) as the trustee, and
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Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary and nominee for the
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lender. (Id.). Bank of America Corporation doing business as BAC Home Loan Servicing, LP (“BAC”)
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purchased Countrywide. (SAC ¶ 7).
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Plaintiff subsequently defaulted on the loan. (SAC Ex. D). Recon, acting as an agent for
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MERS, issued a Notice of Default beginning foreclosure proceedings against Plaintiff in September
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2010. (Id.). Plaintiff received two letters from Recon, dated September 2, 2010, and September 23,
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2010, verifying the indebtedness on the note and identifying Countrywide as the original creditor of the
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underlying debt. (SAC ¶ 21; SAC Ex. C).
On January 13, 2011, Plaintiff filed this action against BAC, MERS, and Does 1-50. Specifi-
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cally, Plaintiff alleges that MERS served solely as the nominee for the lender and could not be the
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beneficiary of the Deed of Trust. (SAC ¶¶ 9, 11). Plaintiff argues that MERS, while serving a limited
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capacity as nominee on the Deed of Trust, had no authority to transfer any beneficial interest in the
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Deed of Trust. (Id. at ¶¶ 11, 12). Plaintiff contends that the current beneficiary of the note is unknown
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because there are “no recorded documents that transfer, convey, or assign any rights, title or interest as
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beneficiary holding legal title to a different present beneficiary.” (Id. at ¶ 9). Thus, Plaintiff alleges that
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Recon lacks the authority necessary to institute foreclosure proceedings on Plaintiff’s property.
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Based on these allegations, the SAC contains the following four counts: Count One - Fraud and
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Fraud in the Inducement against BAC and MERS; Count Two - Declaratory Relief against BAC; Count
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Three - Negligent Misrepresentation against BAC and MERS; and Count Four - Fair Debt Collection
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Practices Act (“FDCPA”), 15 U.S.C. § 1692 against BAC.
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LEGAL STANDARD FOR MOTION TO DISMISS
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A complaint must contain “a short and plain statement of the claim showing that the pleader is
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entitled to relief.” Fed. R. Civ. P. 8(a). A motion to dismiss pursuant to Rule 12(b)(6) of the Federal
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Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ.
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P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). The court must accept all factual
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allegations pleaded in the complaint as true, and must construe them and draw all reasonable inferences
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from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337–38 (9th
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Cir.1996). To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations,
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rather, it must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp.
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v. Twombly, 550 U.S. 544, 570 (2007). A claim has “facial plausibility when the plaintiff pleads factual
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content that allows the court to draw the reasonable inference that the defendant is liable for the
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misconduct alleged.” Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949 (2009) (citing Twombly,
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550 U.S. at 556).
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However, “a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief’ requires
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more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not
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do.” Twombly, 550 U.S. at 555 (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)) (alteration in
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original). A court need not accept “legal conclusions” as true. Iqbal, 129 S.Ct. at 1949. In spite of the
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deference the court is bound to pay to the plaintiff's allegations, it is not proper for the court to assume
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that “the [plaintiff] can prove facts that [he or she] has not alleged or that defendants have violated the ...
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laws in ways that have not been alleged.” Associated Gen. Contractors of Cal., Inc. v. Cal. State
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Council of Carpenters, 459 U.S. 519, 526 (1983). “Where a complaint pleads facts that are ‘merely
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consistent with’ a defendant's liability, it ‘stops short of the line between possibility and plausibility of
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entitlement to relief.’ “ Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 557).
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For a Rule 12(b)(6) motion, a court generally cannot consider material outside the complaint. See
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Branch v. Tunnell, 14 F.3d 449, 453–54 (9th Cir.1994), overruled on other grounds by Galbraith v.
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County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). A court may, however, consider exhibits
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submitted with the complaint. Van Winkle v. Allstate Ins. Co., 290 F. Supp.2d 1158, 1162 n. 2 (C.D. Cal.
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2003). A court may disregard allegations in the complaint if they are contradicted by facts established
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by exhibits attached to the complaint. Durning v. First Boston Corp., 815 F.2d 1265, 1267 (9th Cir.
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1987).
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ANALYSIS
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There are two primary differences between the SAC and the previously dismissed FAC. First,
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the SAC does not include the negligence claim found in Count Three of the FAC. Second, the SAC
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contains four new paragraphs, ¶¶ 8, 9, 11, and 12, in which Plaintiff alleges that there is no recorded
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document conveying any beneficial interest in the Deed of Trust to BAC from Countrywide and thus
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BAC cannot foreclose on the Deed of Trust through Recon. Beyond these two changes, the SAC does
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not differ significantly from the FAC and the allegations in the four remaining causes of action remain
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the same.
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As explained in the Court’s prior order, California Civil Code section 2924 provides the
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“comprehensive statutory framework established to govern nonjudicial foreclosure sales [and] is
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intended to be exhaustive.” Moeller v. Lien, 25 Cal. App. 4th 822, 834 (1994); I.E. Assoc. v. Safeco
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Title Ins. Co., 39 Cal. 3d 281 (1985). Under section 2924(a)(1), a “trustee, mortgagee, or beneficiary or
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any of their authorized agents” may conduct the foreclosure process. The Deed of Trust names Recon
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as the trustee and MERS as nominee for the lender and beneficiary. (SAC. Ex. C at 2). Pursuant to
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section 2924(a)(1), both Recon and MERS have the ability to initiate the foreclosure process. Plaintiff’s
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additions to the SAC relate to the propriety of BAC foreclosing on the property; however, the Notice of
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Default clearly states that Recon acting as an agent for MERS is foreclosing on Plaintiff’s property.
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(SAC Ex. D.) Plaintiff has not added any allegations to the SAC explaining why Recon acting as an
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agent for MERS should be prohibited from foreclosing upon the property.
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Similarly, Plaintiff has yet to provide the Court with any legal basis for the proposition that
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MERS does not have the capacity to act as a beneficiary of the Deed of Trust. The SAC continues to
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base its claims on MERS’ alleged inability to serve as a beneficiary despite the Court dispelling this
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theory with regard to the FAC. As previously noted, Plaintiff agreed to MERS’ designation as nominee
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and beneficiary with the power to foreclose when she executed the Deed of Trust. That document
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clearly states that “Borrower understands and agrees that MERS holds only legal title to the interests
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granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS
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(as nominee for Lender and Lender's successors and assigns) has the right: to exercise any or all of those
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interests, including, but not limited to, the right to foreclose and sell the Property....” ( Id. at 3-4.).
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Thus, pursuant to the Deed of Trust, MERS had authority to assign its beneficial interest to another
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party. Castaneda v. Saxon Mortg. Servs., Inc., 687 F. Supp. 2d 1191, 1198 (E.D. Cal. 2009); Lane, 713
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F. Supp. 2d at 1099 (“MERS has standing to foreclose as the nominee for the lender and beneficiary of
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the Deed of Trust and may assign its beneficial interest to another party”). As discussed further below,
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Plaintiff’s claims to the contrary are unsupported.
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Inasmuch as the four causes of action in Plaintiff’s SAC are those set forth in the FAC, the
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analysis set forth in the Court’s previous order dismissing the FAC remains applicable. Accordingly,
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the following analysis is taken largely from the Court’s previous opinion. (Doc. No. 27.)
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Count One alleges that BAC and MERS engaged in fraud by intentionally omitting the fact that
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“MERS had no authority to convey or transfer its beneficial interest to any party because it lacked the
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substantive rights and ... had no legal beneficial interest to begin with.” (SAC ¶ 30). Plaintiff claims
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that “[t]hrough MERS’s invalid transfer of the Deed of Trust to BAC, a scheme was borne [sic] wherein
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BAC, as the purported/beneficiary of the Note is now attempting to collect the debt and foreclose on the
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Subject Property as though it has legal authority to do so.” (Id. at ¶ 28). As an initial matter, Plaintiff’s
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allegations that BAC is foreclosing on the loan contradict the Notice of Default attached to the Amended
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Complaint. (SAC Ex. D). The Notice of Default clearly states that Recon acting as an agent for MERS
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is foreclosing on Plaintiff’s property. Both Recon as the trustee and MERS as the beneficiary under the
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Deed of Trust have authority to foreclose following Plaintiff’s default by virtue of section 2924(a)(1).
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Additionally, Plaintiff has not pled her fraud claim with particularity as required under Fed. R. Civ. P.
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9(b). While Plaintiff argues that Defendants fraudulently failed to inform her of MERS’ capabilities,
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Plaintiff has not offered any support for her claim that MERS could not legally serve as beneficiary
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under the Deed of Trust or the specific nature of the alleged omissions by the Defendants. For these
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reasons, Count One is dismissed for failure to state a claim upon which relief may be granted.
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Count Three is based upon allegations nearly identical to those in Count One and, thus, fail for
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the same reason. Count Three alleges that BAC and MERS made negligent misrepresentations and
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omissions “causing Plaintiff to believe any transfers, sales or assignments of the Note would be made in
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a legal manner consistent with prevailing state law.” (Id. at ¶ 47). Count Three alleges, in essence, that
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BAC and MERS negligently failed to inform Plaintiff that MERS could not legally serve as beneficiary
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on the Deed of Trust or make valid transfers of its interest under the Deed of Trust. Once again,
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Plaintiff has not offered any support for her claim that MERS could not legally serve as beneficiary.
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Pursuant to the Deed of Trust, Plaintiff authorized MERS to serve as nominee for the lender and as the
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beneficiary. Thus, Count Three is dismissed.
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Count Two requests declaratory relief because the “scheduled foreclosure and sale [of Plaintiff’s
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property] will be wrongful and should be enjoined by virtue of the facts alleged” in the SAC. (Id. at ¶
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44). Plaintiff specifies in her prayer for relief that she seeks a declaration that “trustee had no right to
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foreclose and conduct the trustee sale, and has no right to transfer title as a result of that sale because no
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breach occurred by Plaintiff.” (SAC Prayer ¶ 1). As discussed above, a “trustee, mortgagee, or
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beneficiary or any of their authorized agents” may conduct the foreclosure process. Inasmuch as Recon
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had authority to foreclose as both either the trustee or as the beneficiary’s agent under section
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2924(a)(1), Count Two is dismissed.
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Count Four alleges that BAC violated the FDCPA “in that it should have informed Plaintiff that
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it was the legal owner or had authority from the legal owner to collect and pursue payment on the debt
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tied to the Note secured to the Deed of Trust.” (Id. at ¶ 51). The FDCPA prohibits certain unfair and
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oppressive methods of collecting debt. 15 U.S.C. § 1692e. In order to be liable under the FDCPA, BAC
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must fall under its definition of “debt collector.” 15 U.S.C. § 1692a(6). A “debt collector” under the
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FDCPA is “any person who uses any instrumentality of interstate commerce or the mails in any business
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the principal purpose of which is the collection of any debts, or who regularly collects or attempts to
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collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Id. However, it
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was Recon “acting as an agent for the Beneficiary” MERS that filed the Notice of Default under the
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Deed of Trust. (SAC Ex. D at 2). Nothing in the SAC suggests that BAC had any communication with
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Plaintiff in an attempt to collect on the mortgage debt. Accordingly, Count Four is dismissed for failure
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to state a claim upon which relief may be granted.
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CONCLUSION
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Based on the foregoing, Defendants’ Motion to Dismiss the SAC is GRANTED. Plaintiff was
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previously granted the opportunity to amend her complaint in order to remedy the deficiencies noted by
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the Court in its previous order. Despite the changes made by Plaintiff, the SAC’s allegations are
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insufficient under Rule 12(b)(6). Accordingly, it is ORDERED that Plaintiff’s claims be, and they
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hereby are, DISMISSED WITH PREJUDICE, as any further amendment is futile at this point.
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DATED: July 13, 2011
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Hon. Anthony J. Battaglia
U.S. District Judge
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