Shin v. Citizens Bank, N.A. et al

Filing 16

ORDER: (1) Shin's request to strike Citizen's Notice of Lodging Authority, see (ECF No. 14 ), is Granted. The Clerk of the Court is instructed to Strike Citizen's Notice of Lodging Authority (ECF No. 13 ) from the record. (2) The Mot ion to Dismiss (ECF No. 8 ) is Granted. The Complaint (ECF No. 1 ) is Dismissed without prejudice and with leave to file a motion to file an amended complaint within thirty days of the date of this order. If no motion is filed, the Court will direct the clerk to close the case. Signed by Judge William Q. Hayes on 01/30/2018. (ajs)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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BRIAN SHIN, an individual,

Case No.: 17-cv-1435-WQH-WVG
Plaintiff,

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v.

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ORDER

CITIZENS BANK, N.A., doing
business as Citizens One Home
Loans,

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Defendant.

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The matter before the Court is the Motion to Dismiss (ECF No. 8) filed by Defendant

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Citizens Bank, N.A.

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I.

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On July 17, 2017, Plaintiff Brian Shin initiated this action by filing a Complaint (ECF No.

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1) against Defendant Citizens Bank, N.A. (“Citizens”). The Complaint brings causes of

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action under the California Consumer Credit Reporting Agencies Act, California Civil

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Code § 1785.25, and the federal Fair Credit Reporting Act, 15 U.S.C. § 1681s-2(b).

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(Complaint at 1). On September 14, 2017, Citizens filed a Motion to Dismiss Plaintiff’s

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Complaint. (ECF No. 8). On September 30, 2017, Shin filed an Opposition to Defendant’s

Background

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Motion to Dismiss. (ECF No. 10). On October 6, 2017, Citizens filed a Reply in Support

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of Motion to Dismiss. (ECF No. 11).1

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On October 13, 2017, Citizens filed a Notice of Lodging Authority Re Reply in

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Support of Motion to Dismiss Plaintiff’s Complaint. (ECF No. 13). Also on October 13,

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2017, Shin filed Objections and Requests to Strike Defendant Citizen Bank, N.A.’s Notice

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of Lodgment, requesting that the Court strike Citizen’s Notice of Lodging Authority. (ECF

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No. 14). The Court grants Shin’s request to strike Citizen’s Notice of Lodging Authority

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(ECF No. 13).

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II.

Allegations of the Complaint

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At some point in the year 2005, Plaintiff obtained a purchase money
mortgage loan from Countrywide. Countrywide issued the loan as two
separate loans [(the “Loans”)], and as a result documented the purchase
money mortgage loan as both a first mortgage and a second mortgage
[(collectively, the “Mortgages”)]. At some point thereafter, Countrywide
became insolvent, and Bank of America purchased all Countrywide accounts,
including Plaintiff’s first and second mortgages. At some point thereafter,
Bank of America sold the first mortgage to another creditor, while also selling
the second mortgage to Citizens.

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(Complaint at ¶¶ 5-8).

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At some point in 2012, the new owner of the first mortgage began
foreclosing upon the property. The property was ultimate [sic] sold at a
Trustee’s Sale [on] January 10 . . . . [T]he monies netted by the first mortgage
owner after the Trustee’s Sale resulted in more than what was owed upon the
first mortgage, which resulted in the surplus monies being paid to Citizens as
partial payment towards what was then owed to Citizens upon the second
[loan (the “Loan”)].

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Id. at ¶¶ 9-11.

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On October 10, 2017, Shin filed an Objection and Request to Strike Portions of Defendant Citizen
Bank, N.A.’s Reply. (ECF No. 1). Shin requested that the Court strike (1) Citizen’s citation to an
unpublished state court of appeal ruling, (2) the arguments in footnote four of Citizen’s Reply (ECF No.
11), and (3) Citizen’s citations to “court rulings that were not contained within its initial moving papers.”
Id. Shin’s requests to strike portions of Citizen’s Reply are denied.
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“Citizens has been falsely reporting [the Loan] as having an outstanding recent

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balance, was charged off, and that Plaintiff still has personal liability upon the account.”

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Id. at ¶ 14. “Citizens has been updating the reporting of the account every month since

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January 2013 to increase the balance that Citizens alleges is owed upon the account by the

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amount that Citizens alleges is owed each month.” Id. at ¶ 15.

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Citizens knew, or should have known, that the account must be reported as a
$0.00 balance owed, or at least include a notation that Plaintiff has no personal
liability upon the account by virtue of CCP § 580b, because a simple review
of the initial account documents from Countrywide confirms that the account
was a purchase money second mortgage.

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Id. at ¶ 46. “CCP § 580b prevents deficiency liability of any kind after a sale or foreclosure

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when the loan in question is secured by a borrower’s home.” Id. at ¶ 13.

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By letters dated March 16, 2017, Plaintiff submitted written disputes to
the three consumer credit reporting agencies Experian, Equifax, and Trans
Union. In Plaintiff’s dispute letters, he specifically explained that the account
reported by Citizens was a purchase money second mortgage and specifically
explained that the foreclosure netted some monies to Citizens and specifically
explained that the account should be reported as $0.00 balance owed and that
he has no personal liability pursuant to CCP § 580b. Each of the credit
reporting agencies . . . informed Plaintiff that they had received his dispute
letters and that they each notified Citizens of the dispute, had forwarded to
Citizens of the basis of Plaintiff’s dispute, and received a response from
Citizens. Upon receiving the results of the dispute from each credit reporting
agency in April of 2017, Plaintiff discovered that Citizens persisted in its
claim to each credit reporting agency that the account has an outstanding
recent balance, but also update the account to reflect a new balance owed by
adding to the allegedly outstanding balance the most recent monthly payment.
Plaintiff has had multiple telephone conversations with employees of Citizens
wherein he specifically advised them of the problem, with each phone call
resulting in the employee telling Plaintiff that they are not going to update the
credit reporting and that they are going to continue reporting the account as
they have been.

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Id. at ¶¶ 17–21.
III.

Standard of Review

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Federal Rule of Civil Procedure 12(b)(6) permits dismissal for “failure to state a

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claim upon which relief can be granted.” Federal Rule of Civil Procedure 8(a)(2) provides

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that “[a] pleading that states a claim for relief must contain . . . a short and plain statement

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of the claim showing that the pleader is entitled to relief.” “A district court’s dismissal for

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failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is proper if there is

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

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cognizable legal theory.’” Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir.

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2011) (quoting Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990)).

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“[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’

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requires more than labels and conclusions, and a formulaic recitation of the elements of a

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cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting

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Fed. R. Civ. P. 8(a)). “To survive a motion to dismiss, a complaint must contain sufficient

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

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Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim

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has facial plausibility when the plaintiff pleads factual content that allows the court to draw

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the reasonable inference that the defendant is liable for the misconduct alleged.” Id.

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(citation omitted). “When there are well-pleaded factual allegations, a court should assume

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their veracity and then determine whether they plausibly give rise to an entitlement to

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relief.” Id. at 679.

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IV.

Discussion

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California Civil Code § 1785.25(a) states “A person shall not furnish information on

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a specific transaction or experience to any consumer credit reporting agency if the person

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knows or should know the information is incomplete or inaccurate.” 15 U.S.C. § 1681s-

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2(b) states “A person shall not furnish information relating to a consumer to any consumer

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reporting agency if (i) the person has been notified by the consumer, at the address specified

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by the person for such notices, that specific information is inaccurate; and (ii) the

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information is, in fact, inaccurate.” In 2005, the year in which Shin obtained the Mortgages

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and Loans, California Code of Civil Procedure § 580b2 stated:

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No deficiency judgment shall lie in any event . . . under a deed of trust or
mortgage on a dwelling for not more than four families given to a lender to
secure repayment of a loan which was in fact used to pay all or part of the
purchase price of that dwelling occupied, entirely or in part, by the purchaser.

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See 1989 Cal. Legis. Serv. 698.

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Citizens contends that Shin’s claims should be dismissed because the information
that it provided credit reporting agencies concerning the balance on the Loan was not

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“inaccurate” because “Section 580b does not erase Plaintiffs’ debt.” (ECF No. 8-1 at 11).3

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Shin contends that Citizens did provide “incomplete or inaccurate” information to credit

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reporting agencies when it informed them of the balance on the Loan without noting that
Shin is not personally liable for that balance. (ECF No. 10 at 14).

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The Court of Appeals was presented with similar arguments in Kuns v. Ocwen Loan
Servicing, LLC, 611 F. App’x 398 (9th Cir. 2015). In that case,

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Kuns allege[d] that because his former home was bought with a purchase
money mortgage and sold through a nonjudicial foreclosure, he had no
personal liability for the deficiency that resulted from the foreclosure sale.
Cal. Code Civ. Proc. §§ 580b, 580d. Ocwen was nonetheless reporting the
deficiency amount to credit reporting agencies . . . . Kuns allege[d] that

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California Code of Civil Procedure § 580b has since been amended. However, it is not “very clear”
from the text of § 580b that the California Legislature intended the amendments to apply retroactively,
and the Court has not been presented with any convincing extrinsic evidence to that effect. Evangelatos
v. Superior Court, 753 P.2d 585, 642 (Cal. 1988). Consequently, the Court declines to apply the
amendments to § 580b retroactively, and the 2005 version of § 580b governs the Mortgages and Loans.
See Prianto v. Experian Info. Sols., Inc., No. 13-CV-03461-TEH, 2014 WL 3381578, at *4 n.2 (N.D. Cal.
July 10, 2014); Murphy v. Ocwen Loan Servicing, LLC, No. 2:13-CV-555-TLN-EFB, 2014 WL 2875635,
at *1 n.2 (E.D. Cal. June 24, 2014).
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Citizens also contends that Shin’s claims must be dismissed because they are based on § 580b and
the allegations in the Complaint do not demonstrate that Shin qualifies for the protections of § 580b
because the Complaint does not allege that Shin ever occupied the property that he purchased with the
Loan. Id. Shin alleges that Ҥ 580b prevents deficiency liability of any kind after a sale or foreclosure
when the loan in question is secured by a borrower’s home,” and that he qualifies for the protections of §
580b. Id. at ¶¶ 13, 46 (emphasis). The Court finds that, based on these allegations, it is reasonable to
assume that Shin occupied the property that he purchased using the Loan.
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Ocwen’s reporting of the deficiency, without being accompanied by
additional information to indicate Kuns’ lack of personal liability, violated
Ocwen’s obligation under California’s Consumer Credit Reporting Agencies
Act (“CCRAA”) to not report information that Ocwen ‘knows or should know
. . . is incomplete or inaccurate.’ Cal. Civ. Code § 1785.25(a). The district
court concluded that Ocwen had no ‘affirmative duty’ under the CCRAA to
indicate that the deficiency could not be collected from Kuns, and dismissed
the complaint.
Kuns, 611 F. App’x at 399 (omissions in original). The Court of Appeals stated that
information provided to a credit reporting agency is “inaccurate” under California Civil
Code § 1785.25(a) and 15 U.S.C. § 1681s-2(b) when “it is misleading in such a way and to
such an extent that it can be expected to adversely affect credit decisions.” Id. (citing
Carvalho v. Equifax Info. Servs., 629 F.3d 876, 890 (9th Cir. 2010) (quoting Gorman v.
Wolpoff & Abramson, LLP, 584 F.3d 1147, 1163 (9th Cir. 2009))). Applying that standard,
the Court of Appeals concluded that “Kuns’s allegation that Ocwen’s reporting was
‘incomplete or inaccurate’ regarding his personal liability for the foreclosure deficiency
stated a claim under CCRAA § 1785.25.” Id. at 400.
Shin alleges that Citizens “has been reporting the Loan as having an outstanding
recent balance,” and “has been updating the reporting of the account every month . . . to
increase the balance . . . by the amount that Citizens alleges is owed each month.”
Complaint at ¶¶ 14–15. Shin also alleges that Citizens has been reporting “that Plaintiff
still has personal liability” for the Loan. Id. at ¶ 14. Shin’s allegations that Citizens has
been reporting that the Loan has an outstanding balance that is increasing monthly and that
Shin is still personally liable for that balance sufficiently allege that Citizens has be
providing credit reporting agencies information that “is misleading in such a way and to
such an extent that it can be expected to adversely affect credit decisions.” Kuns, 611 F.
App’x at 399 (citing Carvalho, 629 F.3d at 890 (quoting Gorman, LLP, 584 F.3d at 1163)).
Consequently, the Complaint alleges that Citizens has provided “inaccurate” information
to credit reporting agencies under California Civil Code § 1785.25(a) and 15 U.S.C. §
1681s-2(b). Id. The Complaint states claims for violations of California Civil Code §
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1785.25(a) and 15 U.S.C. § 1681s-2(b).4

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V.

Conclusion

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IT IS HEREBY ORDERED that:

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1. Shin’s request to strike Citizen’s Notice of Lodging Authority, see ECF No. 14, is

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GRANTED. The Clerk of the Court is instructed to STRIKE Citizen’s Notice of

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Lodging Authority (ECF No. 13) from the record.

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2. The Motion to Dismiss (ECF No. 8) is GRANTED. The Complaint (ECF No. 1) is

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DISMISSED without prejudice and with leave to file a motion to file an amended

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complaint within thirty days of the date of this order. If no motion is filed, the Court

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will direct the clerk to close the case.
Dated: January 30, 2018

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Citizens also contends that Shin’s claims should be dismissed without leave to amend under Carvalho
“because Plaintiff does not allege a factual inaccuracy.” ECF No. 8-1 at 12 (emphasis in original) (citing
Carvalho, 629 F.3d at 890). That argument is foreclosed by the Court of Appeals’ analysis in Kuns, 611
F. App’x 398 (citing Carvalho, 629 F.3d at 890).
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