Balagso et al v. Aurora Loan Servicess, LLC et al
Filing
31
ORDER GRANTING DEFENDANTS AURORA LOAN SERVICES, LLC, AND MORTGAGE ELECTRONIC REGISTRATION SYSTEMS'S MOTION TO DISMISS AND PARTIALLY DISMISSING CLAIMS AGAINST NONMOVING DEFENDANTS SUA SPONTE 17 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 5/26/11. ("Any Amended Complaint must be filed not later than 14 days after the date this order is filed." "Failure to file an Amended Complaint by the deadline will result in the automatic dismissal of all claims exce pt the TILA damage claim in Count IV as asserted against BNC and Dana Capital.") (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Wilfreda and Virgilio Balagso, Jr. served by first class mail at the address of record on May 26, 2011.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
WILFREDA BALGASO,
VIRGILIO BALAGSO, JR.
Plaintiffs,
vs.
AURORA LOAN SERVICES, LLC,
BNC MORTGAGE INC.,
DANA CAPITAL GROUP, INC.,
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS,
Defendants.
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CIVIL NO. 11-00029 SOM/BMK
ORDER GRANTING DEFENDANTS
AURORA LOAN SERVICES, LLC,
AND MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS’ MOTION
TO DISMISS AND PARTIALLY
DISMISSING CLAIMS AGAINST
NONMOVING DEFENDANTS SUA
SPONTE
ORDER GRANTING DEFENDANTS AURORA LOAN SERVICES, LLC,
AND MORTGAGE ELECTRONIC REGISTRATION SYSTEMS’
MOTION TO DISMISS AND PARTIALLY DISMISSING CLAIMS
AGAINST NONMOVING DEFENDANTS SUA SPONTE
I.
INTRODUCTION.
Plaintiffs Wilfreda Balagso and Virgilio Balagso, Jr.
assert federal and state law claims against several entities that
participated in the origination, settlement, and servicing of
their mortgage and loan, including Defendants Aurora Loan
Services, LLC (“Aurora”), BNC Mortgage Inc. (“BNC”), Dana Capital
Group, Inc. (“Dana Capital”), and Mortgage Electronic
Registration Systems (“MERS”).
The transaction occurred in
September 2006.
Aurora and MERS now seek dismissal of all counts.
For
the reasons set forth in this order, the court GRANTS the motion
and dismisses the Complaint with leave to amend as to certain
counts.
Given obvious pleading defects applicable to all
Defendants, the court also sua sponte dismisses the majority of
claims against other Defendants.
II.
FACTUAL BACKGROUND.
The Balagsos allege that they obtained a loan from Dana
Capital for $531,000 on or about September 23, 2006.
ECF No. 1.1
Compl. ¶ 2,
The mortgage document itself, however, indicates
that BNC was the lender.
See ECF No. 17, Ex. C.
Aurora is
allegedly a debt collector, see Compl. ¶ 3, and Dana Capital the
original broker and servicing company, see Compl. ¶ 4.
The
Balagsos allege that the loan transaction refinanced a loan
involving property in Waikoloa, Hawaii.
Compl. ¶¶ 1, 2.
The Balagsos recite, in general terms,2 that mortgage
brokers and lenders have engaged in predatory lending practices
and that their loan was in fact a predatory lending transaction.
See, e.g., Compl. ¶¶ 19-20.
The Balagsos allege that Defendants
1
Aurora and MERS ask the court to take judicial notice of
the mortgage document relevant to Plaintiffs’ claims against
them. See Aurora and MERS Mot. at 2 n.1, ECF No. 17. Because
Plaintiffs raise no challenge to the authenticity of the mortgage
document found in Aurora and MERS’s Exhibit C, which is a public
document, the court takes judicial notice of it. See Mir v.
Little Co. of Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988)
(providing that a court may “take judicial notice of matters of
public record outside the pleadings and consider them for
purposes of a motion to dismiss”) (quotations omitted).
2
In fact, this Complaint appears to be nearly identical in
form to several other complaints filed by pro se plaintiffs in
this court, all asserting the same twelve causes of action and
attaching a “Forensic Audit Report” by Francha Services, LLC.
See Asao v. Citi Mortgage, Inc., Civ. No. 10-00553 SOM/KSC (D.
Haw. Apr. 28, 2011) (citing several identical complaints).
2
“intentionally concealed the negative implications of the loan
they were offering, and as a result, Plaintiff[s] face[] the
potential of losing their home to the very entity and entities
who placed them in this position.”
Compl. ¶ 20 at 6:9-11.
The Complaint asserts that the loan terms were “not
clear or conspicuous, nor consistent, and are illegal, and
include, for example, extremely high ratios with respect to
Plaintiff[s]’s Income and Liabilities.”
Compl. ¶ 23.
The
Complaint alleges that Dana Capital failed to verify the
Balagsos’ prior or current income or their employment.
¶ 28.
Compl.
The Complaint also asserts that the terms of the loan were
such that the Balagsos “can never realistically repay the loan,”
and that Defendants knowingly made it impossible for the Balagsos
to ever own the subject property free and clear.
7:10; see also Compl. ¶ 29.
Compl. ¶ 23 at
According to the Complaint,
Defendants failed to explain the “workings” of the mortgage
transaction to the Balagsos.
Compl. ¶ 31.
The Balagsos allege that Defendants violated the Truth
in Lending Act (“TILA”), 15 U.S.C. §§ 1601-1667, by failing to
issue initial disclosures, a correct payment schedule, their
proper interest rate, an accurate Good Faith Estimate, or a
“CHARM booklet.”
Compl. ¶¶ 62-65.
The Balagsos also allege that
they received egregious loans that required them to pay
unjustified interest rates, in violation of the Real Estate
3
Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601-2617.
Compl. ¶ 75.
The Complaint asserts the following causes of action
against all Defendants: (1) declaratory relief; (2) injunctive
relief; (3) breach of implied covenant of good faith and fair
dealing; (4) violations of TILA; (5) violations of RESPA; (6)
rescission; (7) unfair and deceptive business practices; (8)
breach of fiduciary duty; (9) unconscionability; (10) predatory
lending; (11) quiet title.
Compl. ¶¶ 44-116.
The Complaint also
asserts as a twelfth cause of action, solely against MERS, “Lack
of Standing; Improper Fictitious Entity.”
Compl. ¶¶ 117-24.
The
Balagsos seek declaratory relief, an injunction enjoining
foreclosure, quiet title, rescission of the loan, damages, and
attorney’s fees.
Compl. at p.26.
On April 4, 2011, Aurora and MERS filed a motion to
dismiss.
ECF No. 17.
Neither BNC Mortgage nor Dana Capital has
entered an appearance in this case.
Pursuant to Local Rule
7.2(d), this court finds this matter suitable for disposition
without a hearing.
III.
STANDARD.
Rule 12(b)(6) of the Federal Rules of Civil Procedure
provides for dismissal of a complaint, or a claim therein, when a
claimant fails “to state a claim upon which relief can be
granted.”
Dismissal under Rule 12(b)(6) may be based on either:
4
(1) lack of a cognizable legal theory; or (2) insufficient facts
under a cognizable legal theory.
Balistreri v. Pacifica Police
Dep’t, 901 F.2d 696, 699 (9th Cir. 1988) (citing Robertson v.
Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir.
1984)).
“To survive a motion to dismiss, a complaint must
contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’”
That is, a
plaintiff must “plead[] factual content that allows the court to
draw the reasonable inference that the defendant is liable for
the misconduct alleged.”
Ashcroft v. Iqbal, ___ U.S. ___, 129 S.
Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 556, 570 (2007); see Evanns v. AT&T Corp., 229 F.3d
837, 839 (9th Cir. 2000).
Under Rule 12(b)(6), the court’s review is generally
limited to the contents of the complaint.
See Marder v. Lopez,
450 F.3d 445, 448 (9th Cir. 2006); Sprewell v. Golden State
Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
All allegations of
material fact are taken as true and construed in the light most
favorable to the nonmoving party.
1068, 1072 (9th Cir. 2005).
See Knievel v. ESPN, 393 F.3d
Conclusory allegations and
unwarranted inferences, however, are insufficient to defeat a
motion to dismiss.
See Sanders v. Brown, 504 F.3d 903, 910 (9th
Cir. 2007); Cholla Ready Mix, Inc. v. Civish, 382 F.3d 969, 973
5
(9th Cir. 2004).
In particular, the court should “identify[] pleadings
that, because they are no more than conclusions, are not entitled
to the assumption of truth.”
Iqbal, 129 S. Ct. at 1950.
The
court should disregard “[t]hreadbare recitals of the elements of
a cause of action, supported by mere conclusory statements.”
at 1949.
Id.
After eliminating such unsupported legal conclusions,
the court must identify “well-pleaded factual allegations,” which
are assumed to be true, “and then determine whether they
plausibly give rise to an entitlement to relief.”
IV.
Id. at 1950.
ANALYSIS.
Aurora and MERS raise a myriad of challenges to the
Complaint.
They argue that the Complaint fails to identify
sufficiently specific allegations against them, that the
allegations allege fraudulent conduct without sufficient
particularity, and that each of the twelve causes of action fails
for various reasons.3
See generally Mem. Supp. Mot. (“Mot.”) at
3
The Complaint also mentions the Equal Opportunity Credit
Act, Compl. ¶ 13; the “Fair Lending/Fair Debt Collection Act,”
id.; and the Federal Trade Commission Act, id. ¶ 42. The
Balagsos, however, assert no claims for relief (i.e., no counts)
for any alleged violations of those federal laws. The Complaint
as written fails to state a claim for violations of those
statutes. Cf. Bautista v. Los Angeles Cnty., 216 F.3d 837,
840-41 (9th Cir. 2000) (“Courts have required separate counts
where multiple claims are asserted, where they arise out of
separate transactions or occurrences, and where separate
statements will facilitate a clear presentation.”) (citations
omitted).
6
8-39, ECF No. 17.
The court first addresses the global attacks
on the Complaint, then turns to the arguments as to each specific
Count.
Because of the similarity between the Complaints, and the
respective Defendants’ motions to dismiss, portions of the
court’s analysis here draw heavily from its analyses in Radford,
Casino, and Asao.
See Radford v. Wells Fargo Bank, Civ. No. 10-
00767 SOM/KSC, 2011 WL 1833020 (D. Haw. May 13, 2011); Casino v.
Bank of Am., Civ No. 10-00728 SOM/BMK, 2011 WL 1704100 (D. Haw.
May 4, 2011); Asao v. Citi Mortgage, Inc., Civ. No. 10-00553
SOM/KSC (D. Haw. Apr. 28, 2011).
In their Opposition, the Balagsos fail to respond to
many of Defendants’ arguments in the motion to dismiss.
Instead,
the Balagsos make new allegations and assert new claims, which
this court cannot consider in the present order because
Defendants were not on notice of them.
See Sakala v. BAC Home
Loans Serv., Civ. No. 10-00578 DAE-LEK, 2011 WL 719482, at *5 (D.
Haw. Feb. 22, 2011).
An opposition to a motion to dismiss is not
a proper vehicle for adding claims to a complaint.
See Schneider
v. Cal. Dep’t of Corr., 151 F.3d 1194, 1197 n.1 (9th Cir. 1998)
(“In determining the propriety of a Rule 12(b)(6) dismissal, a
court may not look beyond the complaint to a plaintiff’s moving
papers . . . .”) (citations omitted); Clegg v. Cult Awareness
Network, 18 F.3d 752, 754 (9th Cir. 1994) (finding that for
7
purposes of a motion to dismiss, the court’s review is limited to
the contents of the complaint).
In the Opposition, the Balagsos for the first time
assert causes of action for, among other things, negligent
representation, unjust enrichment, and constructive trust, not
mentioned in the Complaint.
See Opp’n at 7-9.
The Balagsos also
appear to allege that Aurora committed wrongful acts with respect
to TILA and RESPA by failing to respond to a qualified written
request.
Id. at 2-3.
Because the Complaint, even liberally
construed, does not raise any of these claims, they are
disregarded for purposes of ruling on the instant Motion to
Dismiss.
A.
Specificity of Allegations Against Aurora and
MERS.
Rule 8(a) of the Federal Rules of Civil Procedure
mandates a “short and plain statement of the claim showing that
the pleader is entitled to relief.”
Fed. R. Civ. P. 8(a)(2).
This rule requires that “allegations in a complaint or
counterclaim must be sufficiently detailed to give fair notice to
the opposing party of the nature of the claim so that the party
may effectively defend against it.”
1191, 1204 (9th Cir. 2011).
Starr v. Baca, 633 F.3d
Failure to draft a complaint that
complies with Rule 8 is grounds for dismissal under Rule 41(b) of
the Federal Rules of Civil Procedure.
See Nevijel v. N. Coast
Life Ins. Co., 651 F.2d 671, 673 (9th Cir. 1981).
8
Aurora and MERS argue that the allegations against them
should be dismissed because the Complaint fails to allege
specific wrongdoing by either Defendant.
Mot. at 8-9.
agrees that the Complaint largely lacks specificity.
The court
For
example, the Balagsos name Aurora in the caption of the
Complaint, but never mention Aurora in the Complaint itself.
However, it appears from Aurora and MERS’s motion to
dismiss that they were able to sufficiently respond to the
Complaint as drafted.
Therefore, the court does not rely on Rule
8 in this dismissal order.
However, the court counsels the
Balagsos to ensure that any Amended Complaint they may file
states, as specifically as they are able, the precise wrongdoing
they allege on the part of each Defendant.
A complaint that
fails to explain which allegations are relevant to which
defendant is confusing.
This, in turn, “impose[s] unfair burdens
on litigants and judges” because it requires both to waste time
formulating their own best guesses of what the plaintiff may or
may not have meant to assert, risking substantial confusion if
their understanding is not equivalent to plaintiff’s.
See
McHenry v. Renne, 84 F.3d 1172, 1179-80 (9th Cir. 1996).
B.
Whether the Complaint Alleges Fraud.
Aurora and MERS argue that the court should strip the
Complaint of averments of fraud because the Complaint does not
meet the particularity requirement of Rule 9(b) of the Federal
9
Rules of Civil Procedure.
See Fed. R. Civ. P. 9(b) (“In alleging
fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.”).
They argue that,
because multiple Defendants are involved, the Complaint is
deficient; that is, it does not identify each Defendant’s
separate role in a fraudulent scheme and fails to give each
Defendant notice of particular misconduct.
See Mot. at 9-11.
See also Moore v. Kayport Package Express, Inc., 885 F.2d 531,
540 (9th Cir. 1989) (stating that Rule 9(b) requires a plaintiff
to attribute particular fraudulent statements or acts to
individual defendants).
In short, Aurora and MERS argue that the
Complaint fails to explain the “who, what, when, where, and how
of the misconduct alleged.”
Kearns v. Ford Motor Co., 567 F.3d
1120, 1124 (9th Cir. 2009).
Although these arguments regarding lack of
particularity might be correct, the Balagsos have not asserted a
separate claim for fraud.
court to dismiss.
There simply is no fraud claim for the
The Complaint does touch on fraudulent conduct
in various counts (e.g., Count I, Compl. ¶ 45 (“fraudulent loan
transaction”); Count III, Compl. ¶ 59 (“Defendants’ actions in
this matter have been . . . fraudulent”); Count IV, Compl. ¶ 70
(same)).
It does not, however, contain a Count asserting a state
law claim for fraud.
The court therefore declines as a general
matter to strip all “averments of fraud” from the Complaint.
10
Each count stands or falls on its own; if particularity is
required for a specific count, the court will address that
requirement in the context of that count.
The Balagsos did assert a claim for fraud in their
Opposition, but this court has already stated that it will not
consider any claim not in the original Complaint.
If the
Balagsos decide to include a fraud claim in an Amended Complaint,
they must meet the heightened requirement for pleadings relating
to fraud under Rule 9(b) of the Federal Rules of Civil Procedure.
C.
Counts I and II (Declaratory and Injunctive
Relief).
Aurora and MERS contend that Count I (Declaratory
Relief) and Count II (Injunctive Relief), as pled, fail to state
claims upon which relief can be granted because the claims are
remedies, not independent causes of action.
that these counts fail to state a claim.
The court agrees
Mot. at 11-14.
Count I appears to seek relief under the Declaratory
Judgment Act, 28 U.S.C. § 2201.4
4
Count I alleges that “[a]n
The Declaratory Judgment Act provides in pertinent part:
a) In a case of actual controversy within its
jurisdiction . . . any court of the United States, upon
the filing of an appropriate pleading, may declare the
rights and other legal relations of any interested
party seeking such declaration, whether or not further
relief is or could be sought. Any such declaration
shall have the force and effect of a final judgment or
decree and shall be reviewable as such.
28 U.S.C. § 2201(a).
11
actual controversy has arisen and now exists between Plaintiff[s]
and Defendants regarding their respective rights and duties, in
that Plaintiff[s] further contend[] that Defendants did not have
the right to foreclose on the Subject Property.”
Compl. ¶ 45.
The Balagsos ask the court to declare that “the purported power
of sale contained in the Loan [is] of no force and effect at this
time” because of “numerous violations of State and Federal laws
designed to protect borrowers.”
Id. ¶ 46.
The Complaint alleges
that, “[a]s a result of the Defendants’ actions, Plaintiff[s]
ha[ve] suffered damages . . . and seek[] declaratory relief that
Defendants’ purported power of sale is void.”
Id. ¶ 47.
As pled, the Balagsos’ declaratory relief claim is not
cognizable as an independent cause of action.
See Seattle
Audubon Soc’y v. Moseley, 80 F.3d 1401, 1405 (9th Cir. 1996) (“A
declaratory judgment offers a means by which rights and
obligations may be adjudicated in cases brought by any interested
party involving an actual controversy that has not reached a
stage at which either party may seek a coercive remedy and in
cases where a party who could sue for coercive relief has not yet
done so.”) (citation and quotation marks omitted).
That is,
because the Balagsos’ claims are based on allegations regarding
Defendants’ past wrongs, a claim under the Declaratory Judgment
Act is improper and essentially duplicates the other causes of
action.
See, e.g., Ballard v. Chase Bank USA, N.A., 2010 WL
12
5114952, at *8 (S.D. Cal. Dec. 9, 2010) (“A claim for declaratory
relief ‘rises or falls with [the] other claims.’”) (alteration in
original, citation omitted); Ruiz v. Mortg. Elec. Registration
Sys., Inc., 2009 WL 2390824, at *6 (E.D. Cal. Aug. 3, 2009)
(dismissing claim for declaratory judgment when foreclosure had
already occurred and the plaintiff was seeking “to redress past
wrongs”); Mangindin v. Washington Mut. Bank, 637 F. Supp. 2d 700,
707 (N.D. Cal. 2009) (“A claim for declaratory relief is
unnecessary where an adequate remedy exists under some other
cause of action.”); Edejer v. DHI Mortg. Co., 2009 WL 1684714, at
*11 (N.D. Cal. June 12, 2009) (“Plaintiff’s declaratory relief
cause of action fails because she seeks to redress past wrongs
rather than a declaration as to future rights.”).
With respect to Count II, the court follows the
well-settled rule that a claim for “injunctive relief” standing
alone is not a cause of action.
See, e.g., Henke v. Arco Midcon,
L.L.C., 750 F. Supp. 2d 1052, 1059-60 (E.D. Mo. 2010)
(“Injunctive relief, however, is a remedy, not an independent
cause of action.”); Jensen v. Quality Loan Serv. Corp., 702 F.
Supp. 2d 1183, 1201 (E.D. Cal. 2010) (“A request for injunctive
relief by itself does not state a cause of action”) (quotation
marks and citation omitted); Plan Pros, Inc. v. Zych, 2009 WL
928867, at *2 (D. Neb. Mar. 31, 2009) (“no independent cause of
action for injunction exists”); Motley v. Homecomings Fin., LLC,
13
557 F. Supp. 2d 1005, 1014 (D. Minn. 2008) (same).
Injunctive
relief may be available if the Balagsos are entitled to such a
remedy on an independent cause of action.
Accordingly, the court DISMISSES Counts I and II
without leave to amend.
If the Balagsos eventually prevail on an
independent claim, the court will necessarily render a judgment
setting forth (i.e., “declaring”) as much and providing
appropriate remedies.
Similarly, if injunctive relief is proper,
it will be because the Balagsos prevail (or have met the
necessary test for such relief under Rule 65 of the Federal Rules
of Civil Procedure) on an independent cause of action.
Although
only two Defendants have moved to dismiss, this dismissal is as
to all Defendants because the Balagsos cannot prevail on these
counts as to any Defendant.
See Omar v. Sea-Land Serv. Inc., 813
F.2d 986, 991 (9th Cir. 1987).
D.
Count III (Covenant of Good Faith and Fair
Dealing).
Count III asserts a “Contractual Breach of Implied
Covenant of Good Faith and Fair Dealing.”
The Balagsos allege
that every contract imposes a duty of good faith and fair dealing
“in its performance and its enforcement,” Compl. ¶ 54, and that
“Defendants willfully breached their implied covenant of good
faith and fair dealing” by engaging in the acts alleged in the
Complaint (such as withholding disclosures or information, and
14
“willfully plac[ing] Plaintiffs in a loan that they did not
qualify for”).
Id. ¶ 57.
This claim in essence asserts the tort of “bad faith.”
See Best Place, Inc. v. Penn Am. Ins. Co., 82 Haw. 120, 128, 920
P.2d 334, 342 (1996) (adopting tort of bad faith for breach of
implied covenant of good faith and fair dealing in an insurance
contract).
Although bad faith is an accepted tort when a
plaintiff is a party to an insurance contract, the tort has not
been recognized in Hawaii based on a mortgage loan contract.
Moreover, although commercial contracts for sale of
goods also require good faith in their performance and
enforcement, this obligation does not create an independent cause
of action.
See Stoebner Motors, Inc. v. Automobili Lamborghini
S.P.A., 459 F. Supp. 2d 1028, 1037-38 (D. Haw. 2006).
Hawaii
courts have noted that “[o]ther jurisdictions recognizing the
tort of bad faith . . . limit such claims to the insurance
context or situations involving special relationships
characterized by elements of fiduciary responsibility, public
interest, and adhesion.”
Id. at 1037 (quoting Francis v. Lee
Enters., 89 Haw. 234, 238, 971 P.2d 707, 711 (1999)).
The
Balagsos thus do not properly plead an independent claim of bad
faith.
Importantly, even assuming a bad faith tort exists
outside the insurance context, “[a] party cannot breach the
15
covenant of good faith and fair dealing before a contract is
formed.”
Contreras v. Master Fin., Inc., 2011 WL 32513, at *3
(D. Nev. Jan. 4, 2011) (citing Indep. Order of Foresters v.
Donald, Lufkin & Jenrette, Inc., 157 F.3d 933, 941 (2d Cir. 1998)
(“[A]n implied covenant relates only to the performance of
obligations under an extant contract, and not to any pre-contract
conduct.”)).
Hawaii follows this distinction.
See Young v.
Allstate Ins. Co., 119 Haw. 403, 427, 198 P.3d 666, 690 (2008)
(indicating that the covenant of good faith does not extend to
activities occurring before consummation of an insurance
contract).
All of Count III’s allegations concern precontract
activities (failing to disclose terms, failing to conduct proper
underwriting, and making an improper loan).
Defendants cannot be
liable for breaching a contract covenant when no contract
existed.
See id.; see also Larson v. Homecomings Fin., LLC, 680
F. Supp. 2d 1230, 1237 (D. Nev. 2009) (“Because Plaintiffs’ claim
revolves entirely around alleged misrepresentations made before
the [mortgage loan] contract was entered into, [the bad faith
claim] fails as a matter of law.”).
Even if the Balagsos were attempting to assert bad
faith in the performance of a contractual right to foreclose, “a
court should not conclude that a foreclosure conducted in
accordance with the terms of a deed of trust constitutes a breach
16
of the implied covenant of good faith and fair dealing.”
Davenport v. Litton Loan Servicing, LP, 725 F. Supp. 2d 862, 884
(N.D. Cal. 2010) (citation omitted).
“The covenant [of good
faith] does not ‘impose any affirmative duty of moderation in the
enforcement of legal rights.’”
Id. (quoting Price v. Wells Fargo
Bank, 261 Cal. Rptr. 735, 742 (Cal. Ct. App. 1989), modified on
denial of reh’g, 261 Cal. Rptr. 735 (Cal. Ct. App. 1989)).
Accordingly, Count III is DISMISSED.
Because further
amendment would be futile, dismissal of Count III is without
leave to amend.
This dismissal is as to all Defendants.
See
Omar, 813 F.2d at 991.
E.
Count IV (TILA).
Alleging that Defendants violated TILA in issuing the
mortgage and loan, the Balagsos seek rescission and damages.
Compl. ¶¶ 61-70.
See
As explained below, the court concludes that
the Balagsos’ TILA rescission claim is subject to dismissal as to
all Defendants because the Balagsos lack a timely rescissionary
remedy for any asserted violations of TILA (and are precluded
from asserting any right to equitable tolling).
§ 1635(a).
See 15 U.S.C.
The Balagsos’ TILA damages claim is subject to
dismissal as to Aurora and MERS because their motion to dismiss
challenges the Complaint on statute of limitations grounds and
the Balagsos fail to plausibly argue that equitable tolling may
apply.
15 U.S.C. § 1640(a); Hubbard v. Fidelity Fed. Bank, 91
17
F.3d 75, 79 (9th Cir. 1996).
However, because BNC and Dana
Capital are not moving parties and have not sought to assert the
affirmative defense of statute of limitations, the court declines
to dismiss the Balagsos’ TILA damages claim sua sponte as to
these nonmoving Defendants.
Under TILA, borrowers have the right to rescind certain
credit transactions in which the lender retains a security
interest in the borrower’s principal dwelling.
§ 1635(a).
15 U.S.C.
The borrower has the right to rescind the transaction
for three business days following the later of the date of the
transaction’s consummation or the date of the delivery of the
information, rescission forms, and material disclosures required
by TILA.
Id.
If the required information, rescission forms, or
material disclosures are not delivered by the creditor, the right
to rescind expires three years after the transaction’s
consummation.
Id. § 1635(f); King v. Cal., 784 F.2d 910, 915
(9th Cir. 1986).
The statute of limitations applicable to TILA
rescission is not subject to equitable tolling.
See Beach v.
Ocwen Fed. Bank, 523 U.S. 410, 411–13 (1998).
Pursuant to the statute and Regulation Z, 12 C.F.R.
Pt. 226, a borrower may exercise the right to rescind by
notifying the creditor of his intention to do so.
See 15 U.S.C.
§ 1635(a); 12 C.F.R. § 226.23.
The Balagsos allege that the transaction was
18
consummated “on or about” September 23, 2006.
See Compl. ¶ 2.
Even assuming the Balagsos were entitled to the extended
rescission period, their time to rescind the loan expired three
years from that date, in September 2009.
The Balagsos did not
file their Complaint seeking rescission until January 2011.
Because more than three years have passed, the Balagsos cannot
rescind their loan.5
The Balagsos’ damage remedy under TILA is also
time-barred as to Aurora and MERS.
A TILA plaintiff may seek
actual damages for a lender’s failure to provide proper
disclosures.
See 15 U.S.C. § 1640(a).
Under 15 U.S.C.
§ 1640(e), however, an action for damages by a private individual
must be instituted “within one year from the date of the
occurrence of the violation.”
The Ninth Circuit has interpreted
this to mean that the limitations period for a damage claim based
on allegedly omitted or inaccurate disclosures begins on “the
date of consummation of the transaction.”
King, 784 F.2d at 915;
see also Hubbard, 91 F.3d at 79 (holding that when a lender fails
to comply with TILA’s initial disclosure requirements, a borrower
5
The Balagsos oppose the motion to dismiss “[u]nder the
Fed.Civ.P Rule 56 procedure[.]” See Pls. Responsive to (Aurora
Services, LLC) and MERS (Mortgage Electronic Registration
Systems, Inc., Defs’ Claim for Mot. Dismiss (“Opp’n”) at 4, ECF
No. 28. However, on a motion to dismiss, the court is bound by
Iqbal and Twombly, not Rule 56. There are no facts suggesting
the Balagsos sought to rescind at any time prior to the filing of
the Complaint, and any attempt by the Balagsos to rescind earlier
is within their knowledge and does not require discovery.
19
has one year from obtaining the loan to file suit).
To the
extent the Balagsos seek money damages for TILA violations
arising out of the September 2006 loan, those claims against
Aurora and MERS are barred by the one-year statute of limitation,
as the Balagsos did not file their Complaint until January 13,
2011.
The Balagsos argue that the statute should be equitably
tolled because there are “factual questions . . . to be resolved”
and they should have a “reasonable opportunity to discover facts
giving rise to a TILA claim.”
See Opp’n at 3-4.
Courts may toll
the limitations period if the one-year rule would be unjust or
would frustrate TILA’s purpose.
See King, 784 F.2d at 915.
For
example, if a borrower had no reason or opportunity to discover
the fraud or nondisclosures that form the basis of a borrower’s
TILA claim, the court may toll the statute of limitations.
Id.;
see also Huseman v. Icicle Seafoods, Inc., 471 F.3d 1116, 1120
(9th Cir. 2006) (explaining that tolling the statute of
limitations is a factual determination that “focuses on whether
there was excusable delay by the plaintiff and may be applied if,
despite all due diligence, a plaintiff is unable to obtain vital
information bearing on the existence of his claim”).
The Balagsos do not point to any specific information
that was concealed or even allege that any specific matter
somehow prevented them from discovering any potential TILA claim.
20
The acts of qualifying the Balagsos for a loan they could not
repay, failing to make disclosures, charging “exorbitant fees,”
and transferring the loan do not suggest that Defendants sought
to conceal information from the Balagsos about what they were
legally entitled to have received.
It therefore appears that any
TILA money damage claim arising out of allegedly inaccurate or
incomplete disclosures is time-barred as to Aurora and MERS.
Cf.
Hubbard, 91 F.3d at 79 (denying equitable tolling because
borrower had the ability to compare the initial disclosures she
received with TILA’s requirements and thereby learn that the loan
disclosures were inadequate).
In considering the TILA damage claims against nonmoving
Defendants BNC and Dana Capital, this court takes a more
restrained approach to the statute of limitations issue than it
does with moving Defendants.
This is the same approach this
court took with respect to a TILA limitations issue in its
earlier decisions in Radford v. Wells Fargo Bank, Civ. No. 1000767 SOM/KSC, 2011 WL 1833020 (D. Haw. May 13, 2011), Casino v.
Bank of Am., Civ No. 10-00728 SOM/BMK, 2011 WL 1704100 (D. Haw.
May 4, 2011), and Asao v. Citi Mortgage, Inc., Civ. No. 10-00553
SOM/KSC (D. Haw. Apr. 28, 2011).
Here, Aurora and MERS have
placed the limitations issue squarely before the court in their
motion and have met their burden with respect to this affirmative
defense.
The Balagsos were obligated to address this issue in
21
response.
Other Defendants, by contrast, have as of yet made no
showing of carrying their burden on this affirmative defense.
This court hesitates to dismiss claims sua sponte in
reliance on an affirmative defense that has not been raised.
The
court concludes that, with respect to nonmoving Defendants, the
better course is either to allow the Balagsos to be heard on the
issue via the issuance of an order to show cause why a claim
should not be dismissed for untimeliness, or to wait for other
Defendants to bring their own motion on the issue.
Although it
does appear to this court that the Balagsos may face a
limitations problem with their TILA damage claim against
nonmoving Defendants, this court declines to dismiss sua sponte
on the limitations issue and opts to wait for a motion by
Defendants that have yet to move.
The court sees little
likelihood that, having failed to establish equitable tolling of
the limitations period with respect to Aurora and MERS, the
Balagsos could establish that equitable tolling overcomes the
limitations statute with respect to TILA damage claims against
nonmoving Defendants.
Still, to deny the Balagsos the
opportunity to make that attempt would be tantamount to requiring
a plaintiff to include averments about equitable tolling in a
complaint.
Such a requirement would turn the concept of an
affirmative defense on its head; it would require a plaintiff to
address an affirmative defense before it was even raised by a
22
defendant and would entirely erase a defendant’s burden to assert
and establish an affirmative defense.
The court, of course, is aware that any claim may be
dismissed under Rule 12(b)6) on limitations grounds when that
ground is “apparent on the face of the complaint.”
Von Saher v.
Norton Simon Museum of Art at Pasadena, 592 F.3d 954, 969 (9th
Cir. 2010).
A sua sponte dismissal, however, does not have the
benefit of the adversarial system contemplated by a motion
brought under Rule 12(b)(6).
This gives the court pause even
though the court would apply Rule 12(b)(6) tenets to a sua sponte
dismissal.
Thus, the court notes that the Ninth Circuit was
examining an element of a claim on which the plaintiff had the
burden of proof when it said in Omar that a court may dismiss a
claim sua sponte if “the claimant cannot possibly win relief.
813 F.2d at 991.
As the limitations period is a matter on which
a defendant bears the burden, this court does not here sua sponte
dismiss the damage claim against BNC and Dana Capital on statute
of limitations grounds.6
Accordingly, the court GRANTS the motion to dismiss the
Balagsos’ TILA claims as to Aurora and MERS.
With respect to BNC
and Dana Capital, the court DISMISSES sua sponte the Balagsos’
6
Nor does the court rely on Aurora and MERS’s argument that
the Complaint fails to plead reliance. See Mot. at 21. Reliance
is not a requirement that must be pled to state a claim for
statutory damages, which are available for the failure to make
certain initial disclosures. See 15 U.S.C. § 1640.
23
rescission claim only.
This leaves pending the TILA damage claim
against the nonmovants.
F.
Count V (RESPA).
The Balagsos’ RESPA claim is also subject to dismissal.
The Complaint alleges that: (1) Defendants received “egregious”
fees for making the loan; and (2) the Balagsos did not receive a
Housing and Urban Development settlement statement form
(“HUD-1”).
Compl. ¶¶ 73, 75, 77.
The Complaint asserts general
violations of 12 U.S.C. §§ 2601-2617.
Compl. ¶ 72.
Any possible claims for violations of 12 U.S.C. §§ 2603
or 2604 for failing to provide a “good faith estimate” or
“uniform settlement statement” necessarily fail because there is
no private cause of action for a violation of those sections.
See Martinez v. Wells Fargo Home Mortg., Inc., 598 F.3d 549, 557
(9th Cir. 2010).
Failure to provide a HUD–1 statement at the
time of closing is not a viable private cause of action under
RESPA.
See Martinez, 598 F.3d at 557–58 (refusing to allow a
private cause of action under 12 U.S.C. § 2603, in connection
with allegations that HUD–1 settlement statements were not
accurately disclosed).
Thus, the court dismisses the Balagsos’
claim that Defendants failed to provide a HUD–1 at closing.
The Balagsos also appear to be asserting a RESPA claim
under 12 U.S.C. § 2607 for illegal fees at closing.
To the
extent Count V claims that Defendants received excessive fees,
24
that claim under RESPA fails as a matter of law because § 2607
does not prohibit excessive fees, provided the fees were in
exchange for real estate settlement services that were actually
performed by the recipient.
See Martinez, 598 F.3d at 553-54
(concluding that, by prohibiting fees “other than for services
actually performed,” § 2607, “by negative implication, . . .
cannot be read to prohibit charging fees, excessive or otherwise,
when those fees are for services that were actually performed”).
As for other RESPA claims not falling under §§ 2603,
2604, or 2607, the Balagsos allegations are too vague to state a
claim for relief against any Defendant and are dismissed on that
ground.
The movants argue that the RESPA claim is also
time-barred.
The statute of limitations for a RESPA claim is
either one or three years from the date of the violation,
depending on the type of violation.
See 12 U.S.C. § 2614.
As
the Balagsos have not responded to this issue, the court relies
on the limitation ground as an additional basis for dismissal of
the RESPA claim against the movants.
In considering the RESPA claims against nonmoving
Defendants BNC and Dana Capital, this court takes a more
restrained approach to the statute of limitations issue than it
does with the moving Defendants.
As discussed in detail with
respect to the TILA claim, because a limitations defense is an
25
affirmative defense that a defendant has the burden of asserting
and establishing, the court distinguishes between the moving and
nonmoving Defendants in relying on the limitations ground.
With
respect to Count V, however, this distinction does not affect the
result here, as there are other grounds for dismissing Count V as
against nonmoving Defendants.
In summary, the court DISMISSES the Balagsos’ RESPA
claim without leave to amend as to (1) any claim under § 2607
asserting that a fee was “excessive” or otherwise for services
that were actually performed, or (2) any claim under §§ 2603 or
2604.
Allowing amendments on those matters as to any Defendant
would be futile.
See Martinez, 598 F.3d at 554, 557.
Accordingly, because the Complaint fails to state a cause of
action for violation of RESPA, the court GRANTS Defendants’
motion to dismiss the RESPA claim with leave to amend.
dismissal is as to all Defendants.
The
See Omar, 813 F.2d at 991.
If the Balagsos choose to amend their RESPA claim, they may want
to consider whether they could overcome the limitations issue
with respect to BNC and Dana Capital.
G.
Count VI (Rescission).
Count VI asserts that “Plaintiff[s] [are] entitled to
rescind the loan for all of the foregoing reasons: 1) TILA
Violations; 2) RESPA; 3) Fraudulent Concealment; 4) Deceptive
Acts and Practices (UDAP) and 5) Public Policy Grounds, each of
26
which provides independent grounds for relief.”
Compl. ¶ 80.
As
the court noted with respect to the remedies sought in Counts I
and II, the remedy sought in Count VI (rescission) “is only a
remedy, not a cause of action.”
Bischoff v. Cook, 118 Haw. 154,
163, 185 P.3d 902, 911 (Ct. App. 2008).
or falls with [the] other claims.”
*8 (alteration in original).
The remedy thus “rises
Ballard, 2010 WL 5114952, at
Indeed, as alleged here, Count VI
specifically acknowledges that it is seeking rescission based
upon “independent grounds for relief.”
Accordingly, Count VI is DISMISSED without leave to
amend.
The court will address the merits of rescission when
addressing any independent claim allowing rescission.
dismissal is as to all Defendants.
H.
The
See Omar, 813 F.2d at 991.
Count VII (Unfair and Deceptive Acts and
Practices).
Count VII alleges that all Defendants are liable for
Unfair and Deceptive Acts and Practices by failing “to properly
adjust and disclose facts and circumstances relating to
Plaintiff[s]’ mortgage loan and placed Plaintiff[s] in a loan
. . . which they should never have been approved for because they
could not afford it.”
Compl. ¶ 85.
The Balagsos allege that
Defendants “failed to undergo a diligent underwriting process,”
and had “knowledge of these facts, circumstances and risks but
failed to disclose them.”
Id.
Count VII appears to be brought
under Hawaii’s UDAP law, section 480-2(a) of Hawaii Revised
27
Statutes, which states, “Unfair methods of competition and unfair
or deceptive acts or practices in the conduct of any trade or
commerce are unlawful.”
The Balagsos do not state a claim under section 480-2
of the Hawaii Revised Statutes because “lenders generally owe no
duty to a borrower ‘not to place borrowers in a loan even where
there was a foreseeable risk borrowers would be unable to
repay.’”
McCarty v. GCP Mgmt., LLC, 2010 WL 4812763, at *6 (D.
Haw. Nov. 17, 2010) (quoting Champlaie v. BAC Home Loans
Servicing, LP, 706 F. Supp. 2d 1029, 1061 (E.D. Cal. 2009)).
See
also Sheets v. DHI Mortg. Co., 2009 WL 2171085, at *4 (E.D. Cal.
July 20, 2009) (reasoning that no duty exists “for a lender ‘to
determine the borrower’s ability to repay the loan. . . . The
lender’s efforts to determine the creditworthiness and ability to
repay by a borrower are for the lender’s protection, not the
borrower’s.’” (quoting Renteria v. United States, 452 F. Supp. 2d
910, 922-23 (D. Ariz. 2006)).
“[A]s a general rule, a financial institution owes no
duty of care to a borrower when the institution’s involvement in
the loan transaction does not exceed the scope of its
conventional role as a mere lender of money.”
Nymark v. Heart
Fed. Sav. & Loan Ass’n, 283 Cal. Rptr. 53, 56 (Cal. Ct. App.
1991).
Nothing in the Complaint indicates that any Defendant
“exceed[ed] the scope of [a] conventional role as a mere lender
28
of money.”
The claims fail on that basis alone.
The court,
however, cannot conclude at this time that further amendment is
futile and allows the Balagsos an opportunity to amend Count VII
to attempt to state a section 480-2 claim.
Count VII is
DISMISSED with leave to amend as to all Defendants.
See Omar,
813 F.2d at 991.
I.
Count VIII (Breach of Fiduciary Duty).
Count VIII alleges, without distinguishing between
various Defendants, that “Defendants owed a fiduciary duty to
Plaintiff[s] and breached that duty by [f]ailing to advise or
notify Plaintiff[s] . . . that Plaintiff[s] would or had a
likelihood of defaulting on the loan.”
Compl. ¶ 90.
Defendants
also allegedly breached a fiduciary duty owed to the Balagsos by
“exercis[ing] a greater level of loyalty to each other by
providing each other with financial advantages under the loan
without disclosing their relation to one another to
Plaintiff[s].”
Id. ¶ 91.
The Balagsos also allege that the
failure to provide material disclosures “while in the capacity of
Plaintiff[s]’s Lender” and “fail[ure] to fully comply with TILA
and RESPA” violated Defendants’ fiduciary duties.
Id. ¶¶ 92-93.
Count VIII fails to state a claim against the lender
Defendants, including Aurora and MERS.
Aurora is a loan
servicer, and MERS is the disclosed nominee for lender.
29
See Mot.
at 31.
As noted earlier, a borrower-lender relationship is not
fiduciary in nature:
Lenders generally owe no fiduciary duties to
their borrowers. See, e.g., Spencer v. DHI
Mortg. Co., 642 F. Supp. 2d 1153, 1161 (E.D.
Cal. 2009) (“Absent ‘special circumstances’ a
loan transaction ‘is at arms-length and there
is no fiduciary relationship between the
borrower and lender.’”) (quoting Oaks Mgmt.
Corp. v. Super. Ct., 51 Cal. Rptr. 3d 561
(Cal. Ct. App. 2006)); Ellipso, Inc. v. Mann,
541 F. Supp. 2d 365, 373 (D.D.C. 2008)
(“[T]he relationship between a debtor and a
creditor is ordinarily a contractual
relationship . . . and is not fiduciary in
nature.”) (citation omitted); Nymark v. Heart
Fed. Sav. & Loan Ass’n, 283 Cal. Rptr. 53, 54
n.1 (Cal. Ct. App. 1991) (“The relationship
between a lending institution and its
borrower-client is not fiduciary in
nature.”).
McCarty, 2010 WL 4812763, at *5.
Nothing in the Complaint alleges “special
circumstances” that might impose a fiduciary duty in this
mortgage-lending situation, much less a fiduciary duty owed by
loan servicers like Aurora or MERS.
See, e.g., Phillips v. Bank
of Am., Civ. No. 10-00551 JMS-KSC, 2011 WL 240813, at * 11 (D.
Haw. Jan. 21, 2011) (“Plaintiff cites no authority for the
proposition that AHMSI or Deutsche owed a duty to not cause
plaintiff harm in their capacities as servicer and [successor] to
the original lender in ownership of the loan, respectively. . . .
In fact, loan servicers do not owe a duty to the borrowers of the
loans they service.”) (citation omitted); see also Castaneda v.
30
Saxon Mortg. Servs., Inc. 687 F. Supp. 2d 1191, 1198 (E.D. Cal.
2009).
Count VIII is DISMISSED with leave to amend as to all
Defendants.
J.
Count IX (Unconscionability).
Count IX asserts “Unconscionability-UCC-2-3202 [sic
2-302].”
Count IX further asserts that courts may refuse to
enforce a contract or portions of a contract that are
unconscionable, Compl. ¶ 95, and that courts are to give parties
an opportunity to present evidence regarding a contract’s
“commercial setting, purpose and effect” to determine if a
contract is unconscionable.
Id. ¶ 96.
It goes on to allege:
Here, based on the deception, unfair
bargaining position, lack of adherence to the
regulations, civil codes and federal
standards that the Defendants were require[d]
to follow; coupled with the windfall that the
Defendants reaped financially from their
predatory practices upon Plaintiff[]s, the
court may find that the loan agreement and
trust deed are unconscionable and of no force
or effect.
Id. ¶ 97.
Unconscionability is generally a defense to the
enforcement of a contract, not a proper claim for affirmative
relief.
See, e.g., Gaitan v. Mortg. Elec. Registration Sys.,
2009 WL 3244729, at *13 (C.D. Cal. Oct. 5, 2009)
(“Unconscionability may be raised as a defense in a contract
claim, or as a legal argument in support of some other claim, but
it does not constitute a claim on its own.”); see also Barnard v.
31
Home Depot U.S.A., Inc., 2006 WL 3063430, at *3 n.3 (W.D. Tex.
Oct. 27, 2006) (citing numerous cases for the proposition that
neither the common law nor the Uniform Commercial Code allows
affirmative relief for unconscionability).
To the extent unconscionability can be addressed
affirmatively as part of a different or independent cause of
action, such a claim “is asserted to prevent the enforcement of a
contract whose terms are unconscionable.”
Skaggs v. HSBC Bank
USA, N.A., 2010 WL 5390127, at *3 (D. Haw. Dec. 22, 2010)
(emphasis in original).7
Skaggs dismissed a “claim” for
unconscionability because it challenged only conduct such as
“obtaining mortgages under false pretenses and by charging
Plaintiff inflated and unnecessary charges,” and “failing to give
Plaintiff required documents in a timely manner,” but not the
breach of any specific contractual term.
7
Id.
Count IX similarly
In Skaggs, the court noted in dicta that “at least one
Hawaii court has addressed unconscionability when raised as a
claim seeking rescission.” 2010 WL 5390127, at *3 n.2 (citing
Thompson v. AIG Haw. Ins. Co., 111 Haw. 413, 142 P.3d 277
(2006)). This was not an indication that one could raise an
affirmative claim for “unconscionability.” Indeed, in Thompson,
the complaint did not assert a separate count for rescission or
unconscionability. See Thompson, 111 Haw. at 417, 142 P.3d at
281 (indicating that the specific counts were for negligence,
fraud, breach of duty, and unfair and deceptive trade practices
under Haw. Rev. Stat. § 480-2). In Thompson, the remedy of
rescission was based on an independent claim. Similarly, a
remedy for an unconscionable contract may be possible; a
stand-alone claim asserting only “unconscionability,” however, is
improper. See, e.g., Gaitan, 2009 WL 3244729, at *13.
32
fails to identify or challenge any particular contract term as
unconscionable.
Count IX is DISMISSED with leave to amend.
dismissal is as to all Defendants.
K.
This
See Omar, 813 F.2d at 991.
Count X (Predatory Lending).
Count X asserts “Predatory Lending” and lists a variety
of alleged wrongs (e.g., failure to disclose terms and conditions
or material facts, targeting of unsophisticated persons, unfair
loan terms, and improper underwriting) that form the bases of
other causes of action.
Compl. ¶¶ 98-112.
The common law does not support a claim for “predatory
lending.”
See Haidar v. BAC Home Loans Servicing, LP, 2010 WL
3259844, at *2 (E.D. Mich. Aug. 18, 2010) (agreeing that “there
is no cause of action for predatory lending”); Pham v. Bank of
Am., N.A., 2010 WL 3184263, at *4 (N.D. Cal. Aug. 11, 2010)
(“There is no common law claim for predatory lending”).
To the
extent such “predatory” practices provide a claim for relief,
they appear to be grounded in statutes or other common-law causes
of action such as fraud.
otherwise too broad.
The term “predatory lending” is
See Vissuet v. Indymac Mortg. Servs., 2010
WL 1031013, at *3 (S.D. Cal. Mar. 19, 2010) (dismissing claim for
“predatory lending” with leave to amend and noting that the term
is expansive and fails to provide proper notice, leaving
defendants “to guess whether this cause of action is based on an
33
alleged violation of federal law, state law, common law, or some
combination”); see also Hambrick v. Bear Stearns Residential
Mortg., 2008 WL 5132047, at *2 (N.D. Miss. Dec. 5, 2008)
(dismissing a claim for predatory lending that failed to cite any
“[state] or applicable federal law, precedential or statutory,
creating a cause of action for ‘predatory lending.’”).
Count X fails to state a cause of action.
This does
not, of course, mean that “predatory lending” cannot form the
basis of some cause of action.
Instead, the dismissal signifies
that Hawaii courts have not recognized “predatory lending” itself
as a common law cause of action.
The ambiguous term “predatory
lending” potentially encompasses a wide variety of alleged
wrongdoing.
The cause of action pled here fails to provide
notice to any Defendant of what is being claimed.
See Vissuet,
2010 WL 1031013, at *3.
Count X is DISMISSED with leave to amend as to all
Defendants.
The Balagsos may attempt to state a cause of action
based on specific activities (which might be described as
“predatory”) provided that any new predatory lending claim is
based on a recognized statutory or common law theory.
In other
words, the Balagsos may not simply reallege a general claim for
“predatory lending.”
34
L.
Count XI (Quiet Title).
Count XI alleges that Defendants have “no legal or
equitable right, claim, or interest in the Property,” Compl.
¶ 115, and that the Balagsos are entitled to a declaration that
“the title to the Subject Property is vested in Plaintiff[s]
alone.”
Id. ¶ 116.
The Balagsos appear to be making a claim under section
669-1(a) of Hawaii Revised Statutes.
That statute provides that
a quiet title “[a]ction may be brought by any person against
another person who claims, or who may claim adversely to the
plaintiff, an estate or interest in real property, for the
purpose of determining the adverse claim.”
The Balagsos have not
alleged sufficient facts regarding the interests of various
parties to make out a cognizable claim for “quiet title.”
They
have merely alleged elements of section 669-1 without stating a
claim.
See Iqbal, 129 S. Ct. at 1949 (“A pleading that offers
‘labels and conclusions’ or ‘a formulaic recitation of the
elements of a cause of action’” is insufficient.).
Throughout
the Complaint, the Balagsos makes blanket statements about
Defendants as if they were a unit.
As the court is unable to
determine what rights and interests each Defendant allegedly is
claiming in the Subject Property, the claim for quiet title
fails.
35
Count XI is DISMISSED with leave to amend as to all
Defendants.
M.
Count XII (Lack of Standing; Improper Fictitious
Entity).
Count XII asserts a claim for “Lack of Standing;
Improper Fictitious Entity” against MERS.
Compl. ¶¶ 117-24.
Count XII fails to state a claim because a claim for “lack of
standing” may not be alleged against a defendant.
Rather,
standing is a requirement for a plaintiff in order to proceed in
a civil lawsuit.
See generally Lujan v. Defenders of Wildlife,
504 U.S. 555, 560 (1992) (explaining requirements for plaintiffs
to establish constitutional standing); Lake Washington Sch. Dist.
No. 414 v. Office of Superintendent of Pub. Instruction, 634 F.3d
1065, 1067-68 (9th Cir. 2011) (explaining that plaintiffs must
also establish statutory standing, when applicable).
Count XII alleges generally that MERS is an artificial
entity that is “designed to circumvent certain laws and other
legal requirements dealing with mortgage loans.”
Compl. ¶ 120.
Plaintiffs assert that an assignment of the note or mortgage to
MERS is illegal, id. ¶ 121, and that therefore “MERS has no legal
standing to foreclose.”
Id. ¶ 124.
The Balagsos appear to be
alleging that MERS may not foreclose (or has improperly
foreclosed) because it is not a holder of the note.
If this is
the purpose of Count XII, the court will allow the Balagsos an
opportunity to clarify the factual allegations as to MERS.
36
The
Balagsos may, if appropriate, attempt in an Amended Complaint to
assert alleged illegalities as to MERS’s status in an independent
cause of action, but not based on “Lack of Standing; Improper
Fictitious Entity.”
Accordingly, Count XII is DISMISSED with
leave to amend as to MERS only.
V.
CONCLUSION.
For the reasons stated above, the court GRANTS Aurora
and MERS’s motion to dismiss as to all Counts.
The court
dismisses all Counts sua sponte except Count IV (the TILA damage
claim) with respect to BNC and Dana Capital.
With respect to all Defendants, the Balagsos are
granted leave to amend part of Count V (not including “excessive”
fee claims or claims made under 12 U.S.C. §§ 2603 or 2604), and
the entirety of Counts VII, VIII, IX, X, and XI.
The Balagsos
are further granted leave to amend part of Count IV (for damages
under TILA) against BNC and Dana Capital, and the entirety of
Count XII as to MERS.
Counts I, II, III, part of Count IV (for rescission
under TILA), part of Count V (for “excessive” fees and for any
claim under 12 U.S.C. §§ 2603 or 2604), as well as all of Count
VI, are DISMISSED without leave to amend as to all Defendants.
Any Amended Complaint must be filed not later than 14
days after the date this order is filed.
If the Balagsos choose
to file an Amended Complaint, they must clearly state how each
37
named Defendant has injured him.
In other words, the Balagsos
should explain, in clear and concise allegations, what each
Defendant did and how those specific facts create a plausible
claim for relief.
The Balagsos should not include facts that are
not directly relevant to their claims.
Failure to file an Amended Complaint by the deadline
will result in the automatic dismissal of all claims except the
TILA damage claim in Count IV as asserted against BNC and Dana
Capital.
In preparing an Amended Complaint, the Balagsos are
urged to meet the deficiencies identified in this order.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, May 26, 2011.
/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge
Balagso v. Aurora Services, LLC, et al.; Civil No. 11-00029 SOM/BMK; ORDER GRANTING
DEFENDANTS’ Aurora SERVICES, LLC, AND MORTGAGE ELECTRONIC REGISTRATION SYSTEMS’ MOTION
TO DISMISS AND PARTIALLY DISMISSING CLAIMS AGAINST NONMOVING DEFENDANTS SUA SPONTE.
38
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