Pugal et al v. ASC et al
Filing
25
ORDER GRANTING DEFENDANT MORTGAGE ELECTRONIC REGISTRATION SYSTEMS' MOTION TO DISMISS COMPLAINT 18 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 9/21/11. ( Follows oral order of 9/13/11; 23 . "No later than November 15, 2011 , the Pugals may file an Amended Complaint attempting to cure the identified deficiencies.") (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). Rolly and Mary Ann Pugal served by first class mail at the address of record on September 21, 2011.
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
ROLLY PUGAL, an individual;
and MARY ANN PUGAL, an
individual,
)
)
)
)
Plaintiffs,
)
)
vs.
)
)
ASC (America’s Servicing
)
Company); FREMONT INVESTMENT )
AND LOAN, a business entity, )
form unknown; MAUI MORTGAGE
)
EXPRESS, INC., a business
)
entity, form unknown;
)
MORTGAGE ELECTRONIC
)
REGISTRATION SYSTEMS, a
)
business entity, form
)
unknown, and DOES 1-100
)
inclusive,
)
)
Defendants.
)
_____________________________ )
CIVIL NO. 11-00054 SOM/KSC
ORDER GRANTING DEFENDANT
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS’ MOTION
TO DISMISS COMPLAINT
ORDER GRANTING DEFENDANT MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS’ MOTION TO DISMISS COMPLAINT
I.
INTRODUCTION.
On January 21, 2011, pro se Plaintiffs Rolly and Mary
Ann Pugal filed this action against Defendants America’s
Servicing Company, Fremont Investment and Loan, Maui Mortgage
Express, Inc., and Mortgage Electronic Registration Systems
(“MERS”).
The Pugals assert federal and state law claims arising
from a September 10, 2005, mortgage transaction concerning real
property on the island of Maui.
The Pugals used a “form” complaint that this court is
very familiar with.
At the hearing on the motion, Rolly Pugal
indicated that he and his wife paid Francha Services, LLC, and/or
Richard W. Guidotti $4,000 for the Complaint and a “forensic
audit” of their loan attached to the Complaint.
These documents
appear to have been prepared by Francha and/or Guidotti for the
Pugals to file with this court on a pro se basis.
The complaint
is nearly identical to many other complaints that appear to have
been prepared by Francha that have been dismissed by this court.
The Complaint seeks declaratory and injunctive relief, as well as
damages and rescission of the mortgage transaction.
MERS seeks
dismissal of all counts against it.1
For the reasons set forth in this order, the court
GRANTS MERS’s motion and dismisses the Complaint with leave to
amend as to certain counts as set forth in this order.
Given
obvious pleading defects applicable to all other Defendants, as
well as Rolly Pugal’s stated acquiescence at the hearing with
1
At the hearing on the motion, Rolly Pugal indicated that he
has been attempting to contact Francha for further help, but that
Francha is not returning his calls. If Rolly Pugal’s comments
were intended to suggest that Francha and/or Guidotti have failed
to provide what was promised, or that the Pugals seek a remedy in
this court with respect to that subject, the court responds by
noting that the Pugal’s Complaint does not include any claims
against Francha and/or Guidotti. The court is not here
recommending that this lawsuit be expanded to include such
claims. Instead, the Pugals may wish to consider seeking
assistance with respect to what they paid to Franca and/or
Guidotti from various government agencies, including but not
limited to the State of Hawaii Office of Consumer Protection,
reachable by mail at 234 South Beretania Street, Room 801,
Honolulu Hawaii, 96813, or by phone at (808) 586-2630.
2
respect to the untimeliness of some claims, the court also sua
sponte dismisses all claims against nonmoving Defendants.
II.
STANDARD OF REVIEW.
On a Rule 12(b)(6) motion to dismiss, all allegations
of material fact are taken as true and construed in the light
most favorable to the nonmoving party.
F.3d 1182, 1184 (9th Cir. 2009).
Marcus v. Holder, 574
To survive a motion to dismiss,
a complaint must contain sufficient factual matter to “state a
claim to relief that is plausible on its face.”
v. Twombly, 550 U.S. 544, 570 (2007).
Bell Atl. Corp.
“A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Iqbal, 129 S. Ct. 1937, 1949 (2009).
Ashcroft v.
“Threadbare recitals of the
elements of a cause of action, supported by mere conclusory
statements, do not suffice.”
Id. (citing Twombly, 550 U.S. at
554).
Dismissal under Rule 12(b)(6) may be based on either:
(1) lack of a cognizable legal theory, or (2) insufficient facts
under a cognizable legal theory.
Balistreri v. Pacifica Police
Dept., 901 F.2d 696, 699 (9th Cir. 1988) (citing Robertson v.
Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir.
1984)).
3
III.
FACTUAL BACKGROUND.
The court assumes the Complaint’s factual allegations
are true for purposes of this motion.
See, e.g., Savage v.
Glendale Union High Sch., 343 F.3d 1036, 1039 n.1 (9th Cir.
2003).
According to the Complaint, the Pugals entered into a
loan repayment and security agreement with Maui Mortgage Express,
Inc., “on or about September 10, 2005.”
No. 1, Jan. 21, 2011.
See Complaint ¶ 2, ECF
Plaintiffs allege that they obtained a 30-
year loan of $571,500 with a fixed mortgage rate of 6.75%.
Id.
It appears that Fremont Investment and Loan serviced the loan.
See id. ¶ 20.
loan.”
MERS is alleged to be the “beneficiary for the
Id. ¶ 113.
The Complaint alleges that “MERS was created
to eliminate the need for the executing and recording of
assignment of mortgages, with the idea that MERS would be the
mortgagee of record.”
Id.
This allegation is basically
consistent with the Ninth Circuit’s recent explanation of how
MERS operates.
See Cervantes v. Countrywide Home Loans, __ F.3d
__, 2011 WL 3911031 (9th Cir. Sept. 7, 2011).
For purposes of
this motion, the court does not rely on the facts set forth in
Cervantes, but simply notes the existence of the opinion to
provide general background.
The Pugals assert, among other things, that (1) the
terms of the transaction were not clear and Defendants never
4
explained the transaction to them, id. ¶ 29; (2) the loan was
more expensive than alternative financing arrangements they
qualified for, id. ¶ 22; and (3) Defendants charged excessive or
illegal fees.
counts:
Id. ¶ 31.2
The Complaint asserts twelve separate
(1) Declaratory Relief; (2) Injunctive Relief;
(3) Contractual Breach of Implied Covenant of Good Faith and Fair
Dealing; (4) Violations of the Truth in Lending Act (“TILA”);
(5) Violations of the Real Estate Settlement Practices Act
(“RESPA”); (6) Rescission; (7) Unfair and Deceptive Acts and
Practices (“UDAP”); (8) Breach of Fiduciary Duty;
(9) Unconscionability; (10) Predatory Lending; (11) Quiet Title;
and (12) Lack of Standing (MERS).3
2
The Complaint often fails
as to alleged causes of action.
Amended Complaint should allege
Defendants, i.e., it should tie
specific Defendants and explain
to distinguish among Defendants
To provide proper notice, any
necessary facts against specific
each claim to one or more
how each Defendant is liable.
3
The Complaint also mentions the Equal Opportunity Credit
Act, Complaint ¶ 12; the “Fair Lending/Fair Debt Collection Act,”
id.; the Federal Trade Commission Act, id. ¶ 40, and fraudulent
concealment, id. ¶ 77. The Pugals, however, assert no claims for
relief (i.e., no counts) for any such alleged violations, and
therefore fail to state a claim for such alleged violations. 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). The
court further notes that the “fraudulent concealment” mentioned
in paragraph 77 is not pled with the required specificity. See
Fed. R. Civ. P. 9(b) (requiring a party asserting fraud to “state
with particularity the circumstances constituting fraud”); Kearns
v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009)
(“Averments of fraud must be accompanied by the who, what, when,
5
On July 11, 2011, MERS filed the present Motion,
seeking dismissal of all counts.
See ECF No. 18.
The Pugals did
not file an Opposition to the motion, but were given a chance to
oppose the motion orally at the hearing held on September 14,
2011.
At that hearing, Rolly Pugal acquiesced in the present
dismissal.
For the reasons set forth below, the court grants the
motion.
IV.
ANALYSIS.
The Pugals have submitted a “form” Complaint that
asserts claims that are nearly identical to claims asserted in
many other cases filed in this court.
The Complaint attaches a
“Forensic Audit Report” by Francha Services, LLC.
This court
notes that it has addressed the same claims on many occasions,
although there are also numerous other cases based on “form”
complaints that this court has not yet addressed in orders.
See,
e.g., Caniadido v. MortgageIT, LLC, 2011 WL 3837265 (D. Haw. Aug.
26, 2011); Ramos v. Chase Home Fin., 2011 WL 3793346 (D. Haw.
Aug. 25, 2011); Gambing v. OneWest Bank, 2011 WL 2940318 (D. Haw.
July 18, 2011); Kelly v. Bank of Am., 2011 WL 2493048 (D. Haw.
June 22, 2011); Campollo v. Bank of Am., 2011 WL 2457674 (D. Haw.
June 16, 2011); Balagso v. Aurora Loan Servs., LLC, 2011 WL
2133709 (D. Haw. May 26, 2011); Casino v. Bank of Am., 2011 WL
where, and how of the misconduct charged.” (internal quotations
omitted)) .
6
1704100 (D. Haw. May 4, 2011); Asao v. Citi Mortgage, Civ. No.
10-00553 SOM/KSC, ECF No. 50 (D. Haw. Apr. 28, 2011); Badua v.
Fremont Inv. & Loan, Civ. No. 10-00580 DAE/BMK, ECF No. 45 (D.
Haw. Apr. 20, 2011); Hoilien v. Bank of Am., Civ. No. 10-00712
JMS/BMK, 2011 WL 976699 (D. Haw. Mar. 17, 2011); Marzan v. Bank
of Am., 2011 WL 915574 (D. Haw. Mar. 10, 2011); Sakugawa v.
Countrywide Bank F.S.B., 2011 WL 572528 (D. Haw. Feb. 14, 2011);
Gorospe v. Security Natl. Mortgage, 2011 WL 578844 (D. Haw. Feb.
8, 2011); Mier v. Lordsman Inc., Civ. No. 10-00584 JMS-KSC, 2011
WL 285862 (D. Haw. Jan. 27, 2011); Phillips et al. v. Bank of
Am., 2011 WL 240813 (D. Haw. Jan. 21, 2011); Sakugawa v. Indymac
Bank, FSB, Civ. No. 10-00504 JMS/LEK, ECF No. 15 (D. Haw. Nov.
24, 2010).
The court draws extensively from those orders.
A.
Counts I and II (Declaratory and Injunctive
Relief).
MERS contends that Count I (Declaratory Relief) and
Count II (Injunctive Relief), as pled, fail to state claims upon
which relief can be granted.
The court agrees.
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
7
actual controversy has arisen and now exists between Plaintiffs
and Defendants regarding their respective rights and duties, in
that Plaintiffs contend[] that Defendants did not have the right
to foreclose on the Subject Property[.]”
Complaint ¶ 43.
The
Pugals 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. ¶ 44.
The Pugals say, “As
a result of Defendants’ actions, Plaintiffs have suffered damages
. . . and seek[] declaratory relief that Defendants’ purported
power of sale is void and has no force or effect[.]”
Id. ¶ 45.
MERS seeks dismissal of the declaratory relief claim
asserted in Count 1, arguing that the respective statutes of
limitations for the state and federal laws on which the claim is
based have run.
As discussed below with respect to the
substantive counts, this court agrees that the applicable
statutes of limitations have run.
However, the court dismisses
the declaratory relief claim on a more fundamental level because,
as alleged in the Complaint, it is not cognizable as an
independent cause of action.
See Seattle Audubon Soc. v.
Moseley, 80 F.3d 1401, 1405 (9th Cir. 1996) (“A declaratory
shall have the force and effect of a final judgment or
decree and shall be reviewable as such.
28 U.S.C. § 2201(a).
8
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 signals omitted)).
Because the Pugals’ declaratory
relief claim is based on allegations regarding Defendants’ past
wrongs, their claim under the Declaratory Relief Act is improper
and essentially duplicates their other causes of action.
See,
e.g., Ballard v. Chase Bank USA, NA, 2010 WL 5114952, at *8 (S.D.
Cal. Dec. 9, 2010) (“A claim for declaratory relief ‘rises or
falls with [the] other claims.’”) (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”); 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.”); 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.”).
9
With respect to Count II, the court agrees with MERS
that a claim for “injunctive relief” standing alone is not a
cause of action.
See, e.g., 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”);
Henke v. Arco Midcon, L.L.C., 2010 WL 4513301, at *6 (E.D. Mo.
Nov. 2, 2010) (“Injunctive relief, however, is a remedy, not an
independent cause of action.”); 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,
557 F. Supp. 2d 1005, 1014 (D. Minn. 2008) (same).
Injunctive
relief may be available if the Pugals 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 Pugals 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 Pugals have prevailed (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 MERS has moved to dismiss, the dismissal of Counts I and II
is as to all Defendants because the Pugals cannot prevail on
Count I or II as to any Defendant.
10
See Omar v. Sea-Land Serv.
Inc., 813 F.2d 986, 991 (9th Cir. 1987) (stating that a “trial
court may dismiss a claim sua sponte under Fed. R. Civ. P.
12(b)(6). . . .
Such a dismissal may be made without notice
where the claimant cannot possibly win relief.”).
B.
Count III (Covenant of Good Faith and Fair
Dealing).
Count III asserts a claim for “Contractual Breach of
Implied Covenant of Good Faith and Fair Dealing.”
The Pugals
allege that every contract imposes a duty of good faith and fair
dealing “in its performance and its enforcement,” Complaint ¶ 56,
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 “willfully plac[ing] Plaintiffs in a loan that [they] did not
qualify for”).
Id. ¶ 55.
This claim in essence asserts the tort of “bad faith.”
See Best Place 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.
To
the contrary, the Hawaii Supreme Court has refused to extend the
tort to a claim of a breach of an employment contract and, in so
doing, used language indicating that it would be unlikely to
11
extend it to a breach of a mortgage loan contract.
See Francis
v. Lee Enterprises, Inc., 89 Haw. 234, 238, 971 P.2d 707, 711
(1999) (“[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.”);
accord Stoebner Motors, Inc. v. Automobili Lamborghini S.P.A.,
459 F. Supp. 2d 1028, 1037-38 (D. Haw. 2006).
The Pugals thus do
not properly plead an independent claim of bad faith.
Even assuming a bad faith tort were cognizable outside
the insurance context, “[a] party cannot breach the 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 under an extant
contract, and not to any pre-contract conduct.”)).
follows this distinction.
Hawaii
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, making an
improper loan).
Defendants cannot be liable for breaching a
12
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 Pugals 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 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, 213 Cal.
App. 3d 465, 479-80, 261 Cal. Rptr. 735, 742 (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.
C.
Count IV (TILA).
Count IV asserts violations of TILA.
It specifically
alleges that Maui Mortgage Express and Fremont Investment
violated TILA by failing to issue TILA disclosures.
13
See
Complaint ¶ 60.
Although Count IV is asserted against all
Defendants, it is unclear how MERS allegedly violated TILA.
For
that reason, Count IV fails to meet the minimal pleading standard
with respect to any claim against MERS.
Even if a viable claim were asserted against MERS, the
court agrees with MERS that any TILA damages and rescission
claims would be time-barred.
Any claim for damages under TILA
must be brought “within one year from the date of the occurrence
of the violation.”
15 U.S.C. § 1640(e).
Furthermore, TILA
provides a right to rescind a loan transaction “until midnight of
the third business day following the consummation of the
transaction or the delivery of the information and rescission
forms required under this section together with a statement
containing [the required material disclosures.]”
§ 1635(a).
15 U.S.C.
If the required disclosures are not provided,
however, the right to rescission expires “three years after the
date of consummation of the transaction or upon the sale of the
property, whichever occurs first[.]”
15 U.S.C. § 1635(f).
Because Plaintiffs allege that they consummated their loan on or
about September 10, 2005, see Complaint ¶ 2, the respective TILA
statutes of limitations ran long before the Complaint was filed
on January 21, 2011.
The court notes that Plaintiffs allege in paragraph 62
of their Complaint that the statute of limitations for their TILA
14
claim should be equitably tolled.
That bald conclusion without
factual support or any plausible argument is insufficient to
prevent the granting of MERS’ motion on limitations grounds.
At
best, Plaintiffs argue that the limitation period should not
apply because the lenders failed to provide them with the
required disclosures and notices.
Given MERS’s motion,
Plaintiffs had the burden of explaining how that alleged failure
should extend the explicit limitation period set forth in
§ 1635(f), which gives Plaintiffs three years to bring a TILA
claim when required disclosures are not provided.
See Cervantes,
__ F.3d __, 2011 WL 3911031, *8 (rejecting equitable tolling
argument when Plaintiffs failed to allege circumstances beyond
their control that prevented them from discovering claim;
applying one-year TILA limitation period because the period began
to run when the plaintiffs executed their loan documents and
could have discovered alleged disclosure violations); Hubbard v.
Fidelity Fed. Bank, 91 F.3d 75, 79 (9th Cir. 1996) (rejecting a
tolling argument because “nothing prevented Hubbard from
comparing the loan contract, Fidelity’s initial disclosures, and
TILA’s statutory and regulatory requirements”).
Plaintiffs do
not meet that burden.
This court recognizes that a statute of limitations
defense is an affirmative defense that a defendant has the burden
of establishing.
See Fed. R. Civ. Pro. 8(c); Jones v. Bock, 549
15
U.S. 199, 214-15 (2007) (noting in the course of examining a
requirement that prisoners exhaust administrative remedies before
filing suit that, even though “the complaint is subject to
dismissal for failure to state a claim” because the “allegations
. . . show that relief is barred by the applicable statute of
limitations, . . . that does not make the statute of limitations
any less an affirmative defense”).
In this case, MERS has raised
the statute of limitations as an affirmative defense in its
motion to dismiss, pointing to the allegations of the Complaint
itself as making it clear that the TILA claim is untimely.
The
Ninth Circuit notes, “A claim may be dismissed under Rule
12(b)(6) on the ground that it is barred by the applicable
statute of limitations only when the running of the statute is
apparent on the fact of the complaint.”
Von Saher v. Norton
Simon Museum of Art at Pasadena, 592 F.3d 954, 969 (9th Cir.
2010) (quotations and citations omitted).
As the Complaint
evidences a timeliness problem that MERS’s motion has raised, and
as the Pugals have not responded to this issue, the court relies
on the limitation ground as an additional basis for dismissal of
the TILA claim against MERS.
Because untimeliness is an affirmative defense that the
other Defendants have the burden of establishing, the court would
not normally dismiss the TILA claims against the other Defendants
at this time.
However, at the hearing, Rolly Pugal did not
16
oppose dismissal of those claims and failed to identify any
reason why the claim should be tolled as to any Defendant.
He
instead asked that he be allowed to file an Amended Complaint.
Given his failure to oppose the dismissal of the TILA claims as
to all Defendants, the court dismisses the TILA claims as to all
Defendants.
Because the statute of limitations has run for the
TILA claims asserted in the Complaint, the Pugals may not
reassert those same claims in any Amended Complaint they file.
D.
Count V (RESPA).
Count V alleges a violation of RESPA.
Specifically,
the Complaint alleges that the Pugals paid “egregious” fees in
connection with their loan.
Complaint ¶ 72.
The Complaint
alleges that Plaintiffs were never properly provided a “HUD-1.”
Id. ¶ 73.
Finally, the Complaint alleges that Defendants did not
disclose “all affiliated business arrangements.”
To the extent that the Pugals may be asserting claims
for violations of 12 U.S.C. §§ 2603 or 2604 for failure to
provide a “good faith estimate” or “uniform settlement
statement,” those claims 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).
To the extent the Pugals are asserting a RESPA claim
under 12 U.S.C. § 2607, for illegal fees or “egregious” fees at
closing, that claim under RESPA fails because § 2607 does not
17
prohibit “excessive” fees.
See Martinez v. Wells Fargo Home
Mortg., Inc., 598 F.3d 549, 554 (9th Cir. 2010) (concluding that
§ 2607 “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, if any, the Pugals fail to state which Defendants
allegedly violated which provisions of RESPA.
Those claims, if
any, are too vague to state a claim for relief.
MERS argues that the RESPA claim is also time-barred.
The court agrees.
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
with the TILA claim, the Complaint evidences a timeliness problem
with the RESPA claim that MERS’s motion has raised.
The court
relies on the limitation ground as an additional basis for
dismissal of the RESPA claim against MERS.
However, recognizing that untimeliness is an
affirmative defense that the other Defendants have the burden of
establishing, the court does not here rely on the limitation
period as an additional ground for dismissal of the RESPA claim
made against other Defendants.
Nevertheless, the court DISMISSES
the RESPA claim without leave to amend as to (1) any claim under
§ 2607 asserting that a fee was “excessive” or otherwise for
18
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.
Because MERS has demonstrated that the statute of
limitations has run for the RESPA claims asserted in the
Complaint, the Pugals may not reassert those same claims against
MERS in any Amended Complaint they file.
However, the Pugals are
granted leave to amend Count V against the other Defendants.
They may also amend Count V as to MERS if they are asserting
RESPA claims not asserted in the present Complaint.
813 F.2d at 991.
See Omar,
The Pugals may want to consider whether any
RESPA claim is time-barred before reasserting such a claim.
E.
Count VI (Rescission).
Count VI asserts that “Plaintiffs 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
which provides independent grounds for relief.”
Complaint ¶ 77.
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 (Haw. App. 2008).
or falls with [the] other claims.”
*8.
The remedy thus “rises
Ballard, 2010 WL 5114952, at
Indeed, as alleged here, Count VI specifically acknowledges
19
that it is seeking rescission based upon “independent grounds for
relief.”
Complaint ¶ 77.
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.
F.
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 consummating an
unlawful, unfair, and fraudulent business practice, designed to
deprive Plaintiffs of her [sic] home, equity, as well as their
past and future investment.”
Complaint ¶ 84.
Basically, the
Pugals allege that Defendants as lenders “failed to undergo a
diligent underwriting process,” “failed to properly adjust and
disclose facts,” should not have approved the loan because the
Pugals could not afford it, and had “knowledge of these facts,
circumstances and risks but failed to disclose them.”
Id. ¶ 82.
Count VII appears to be brought under section 480-2(a) of Hawaii
Revised 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 Pugals do not allege a viable 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
20
where there was a foreseeable risk borrowers would be unable to
repay.’”
McCarty v. GCP Management, LLC, 2010 WL 4812763 *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) (finding that borrowers “had to rely
on their own judgment and risk assessment to determine whether or
not to accept the loan”)).
“[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. App. 1991).
Nothing in the Complaint indicates that any Defendant “exceed[ed]
the scope of [a] conventional role as a mere lender of money.”
The claim fails on that basis alone.
The court, however, cannot
conclude at this time that further amendment is futile and allows
the Pugals an opportunity to amend Count VII to attempt to state
a section 480-2 claim.
21
MERS also argues that this claim is barred by the
applicable four-year statute of limitations.
See Haw. Rev. Stat.
§ 480-24(a) (barring a chapter 480 claim “unless commenced within
four years after the cause of action accrues”).
As with the TILA
and RESPA claims, the Complaint evidences a timeliness problem
with the chapter 480 claim that MERS’s motion has raised.
As the
Pugals have not responded to this issue, the court relies on the
limitation ground as an additional basis for dismissal of the
chapter 480 claim against MERS.
However, as with the TILA and
RESPA claims, the court is dismissing the chapter 480 claim
against other Defendants sua sponte.
Again in recognition of
untimeliness as an affirmative defense that they have the burden
of establishing, the court does not here rely on the limitation
period as an additional ground for dismissal of the chapter 480
claim made against Defendants other than MERS.
Count VII is DISMISSED with leave to amend as to all
Defendants.
See Omar, 813 F.2d at 991.
Of course, in filing an
Amended Complaint, the Pugals may not reassert the same claims
against MERS, as those claims are barred by the applicable
statute of limitations.
Also, the Pugals should consider the
applicable statute of limitation in deciding whether to reassert
a chapter 480 claim against other Defendants in any Amended
Complaint.
22
G.
Count VIII (Breach of Fiduciary Duty).
Count VIII alleges, without distinguishing between
various Defendants, that Defendants owed the Pugals a fiduciary
duty and breached that duty by failing “to advise or notify
Plaintiffs . . . that Plaintiffs would or had a likelihood of
defaulting on the loan.”
Complaint ¶ 87.
Defendants also
allegedly breached a fiduciary duty 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[.]”
Id. ¶ 88.
The Complaint also
alleges that failure to provide material disclosures “while in
the capacity of Plaintiff’s Lender” and “fail[ure] to fully
comply with TILA and RESPA . . . are violations of a fiduciary
responsibility owed to Plaintiff by Defendants.”
Id. ¶¶ 89-90.
These allegations fail to state a claim against any
Defendant.
As noted earlier with respect to the UDAP claim
asserted in Count VII, McCarty held that 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. 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
23
. . . and is not fiduciary in nature.”)
(citation omitted); Nymark v. Heart Fed. Sav.
& Loan Ass’n, 283 Cal. Rptr. 53, 54 n.1 (Cal.
App. 1991) (“The relationship between a
lending institution and its borrower-client
is not fiduciary in nature.”).
McCarty, 2010 WL 4812763, at *5.
Count VIII is DISMISSED with leave to amend as to all
Defendants.
H.
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, Complaint ¶ 92, and should give parties an
opportunity to present evidence regarding a contract’s
“commercial setting, purpose and effect” to determine if a
contract is unconscionable.
Id. ¶ 93.
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 [sic],
the court may find that the loan agreement
and trust deed are unconscionable and of no
force or effect.
Id. ¶ 94.
“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.,
24
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.
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).5
Skaggs dismissed a “claim” for
unconscionability because it challenged only conduct such as
5
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 v. Mortg. Elec. Registration Sys.,
2009 WL 3244729, at *13 (C.D. Cal. Oct. 5, 2009).
25
“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.
Id.
Count IX similarly
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.
I.
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.
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
26
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
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.
In any Amended Complaint, the Pugals 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
27
theory.
In other words, the Pugals may not simply reallege a
general claim for “predatory lending.”
J.
Count XI (Quiet Title).
Count XI alleges that “Defendants have no legal or
equitable right, claim, or interest in the Property,” Complaint
¶ 109, and that the Pugals are entitled to a declaration that
“the title to the Subject Property is vested in Plaintiff’s [sic]
alone[.]” Id. ¶ 117.
The Pugals 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 Pugals do not
state a cognizable claim for quiet title, as they have not
alleged sufficient facts regarding the interests of various
parties to make out a cognizable claim for “quiet title.”
Instead, the Pugals merely allege the 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.).
Count XI is DISMISSED with leave to amend as to all
Defendants.
28
K.
Count XII (Lack of Standing (MERS)).
Count XII asserts that MERS is an “artificial” entity
that was designed to circumvent mortgage recording laws.
Complaint ¶ 114.
See
The Complaint alleges that MERS was named the
“beneficiary” of the Pugals’ loan so that MERS could be the
mortgagee of record.
Id. ¶ 113.
Because MERS remained the
mortgagee of record, the Pugals say that their loan could be
bought and sold by the real owner(s) of the loan, saving
subsequent buyers of the loan the trouble and expense of
recording their ownership interest in the loan and the trouble of
actually transferring the mortgage and note to any new owner.
See id.
This process was recently explained by the Ninth Circuit
in Cervantes v. Countrywide Home Loans, __ F.3d __, 2011 WL
3911031, *1 (9th Cir. Sept. 7, 2011) (“MERS is a private
electronic database, operated by MERSCORP, Inc., that tracks the
transfer of the ‘beneficial interest’ in home loans, as well as
any changes in loan servicers.
After a borrower takes out a home
loan, the original lender may sell all or a portion of its
beneficial interest in the loan and change loan servicers.
The
owner of the beneficial interest is entitled to repayment of the
loan.
For simplicity, we will refer to the owner of the
beneficial interest as the ‘lender.’
The servicer of the loan
collects payments from the borrower, sends payments to the
lender, and handles administrative aspects of the loan.
29
Many of
the companies that participate in the mortgage industry-—by
originating loans, buying or investing in the beneficial interest
in loans, or servicing loans—-are members of MERS and pay a fee
to use the tracking system.”).
The Pugals allege that the assignment of their loan in
the name of MERS is “illegal,” Complaint ¶ 115, and that MERS has
no standing to foreclose on their loan.
Id. ¶ 118.
The Pugals
thus appear to be alleging that MERS may not foreclose on their
property, or has improperly foreclosed already, because it is not
the holder of their note.
See id. ¶ 116.
However, Plaintiffs do
not allege sufficient facts to support such a claim, as they do
not allege that MERS has attempted or is attempting to foreclose
on their loan.
Accordingly, Count XII is dismissed with leave to
amend.
Before the Pugals file an Amended Complaint, they should
be guided by Cervantes, as it has a discussion of who may
foreclose on a loan involving MERS:
In the event of a default on the loan, the
lender may initiate foreclosure in its own
name, or may appoint a trustee to initiate
foreclosure on the lender’s behalf. However,
to have the legal power to foreclose, the
trustee must have authority to act as the
holder, or agent of the holder, of both the
deed and the note together. . . . The deed
and note must be held together because the
holder of the note is only entitled to
repayment, and does not have the right under
the deed to use the property as a means of
satisfying repayment. . . . Conversely, the
holder of the deed alone does not have a
30
right to repayment and, thus, does not have
an interest in foreclosing on the property to
satisfy repayment. . . . One of the main
premises of the plaintiffs’ lawsuit here is
that the MERS system impermissibly “splits”
the note and deed by facilitating the
transfer of the beneficial interest in the
loan among lenders while maintaining MERS as
the nominal holder of the deed.
The plaintiffs’ lawsuit is also premised on
the fact that MERS does not have a financial
interest in the loans, which, according to
the plaintiffs, renders MERS’s status as a
beneficiary a sham. MERS is not involved in
originating the loan, does not have any right
to payments on the loan, and does not service
the loan. MERS relies on its members to have
someone on their own staff become a MERS
officer with the authority to sign documents
on behalf of MERS. . . . As a result, most
of the actions taken in MERS’s own name are
carried out by staff at the companies that
sell and buy the beneficial interest in the
loans.
Cervantes, __ F.3d __, 2011 WL 3911031, *2.
V.
CONCLUSION.
For the foregoing reasons, the Motion is GRANTED, and
the Complaint is DISMISSED with leave to amend as to specific
counts, as explained above.
No later than November 15, 2011, the
Pugals may file an Amended Complaint attempting to cure the
identified deficiencies.
Although the Pugals may proceed pro se,
the court encourages them to attempt to get an attorney to
represent them.
If the Pugals choose to file an Amended Complaint, they
must clearly state how each named Defendant has injured them.
31
In
other words, they should explain, in clear and concise
allegations, what each Defendant did and how those specific facts
create a plausible claim for relief.
The Pugals should not
include facts that are not directly relevant to their claims.
Failure to file an Amended Complaint by November 15, 2011, will
result in the automatic dismissal of this action as to all
Defendants.
The Pugals are also notified that an Amended Complaint
supersedes the prior Complaint and must be complete in itself,
without incorporating by reference any prior or superseded
See, e.g., King v. Atiyeh, 814 F.2d 565, 567 (9th Cir.
pleading.
1987) (citation omitted).
Any Amended Complaint must stand on
its own and may not assert against a Defendant any claim that has
been dismissed with prejudice with respect to that Defendant.
The Pugals are further reminded that any Opposition to
a Defendant’s motion is due 21 days before the hearing for that
motion.
See Local Rule 7.4 (“An opposition to a motion set for
hearing shall be served and filed not less than twenty-one (21)
days prior to the date of hearing.”).
Notwithstanding the
Pugals’ failure to file an Opposition to MERS’s motion to
dismiss, the court is granting them leave to amend their
Complaint.
However, if they fail to file a written Opposition to
32
any subsequent motion, the court may assume the motion is
unopposed and grant the motion.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, September 21, 2011.
/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District
Judge
Pugal v. ASC, Civ. No. 11-00054 SOM/KSC; ORDER GRANTING DEFENDANT MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS’ MOTION TO DISMISS COMPLAINT
33
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?