Sluka v. Rushmore Loan Management Services, LLC

Filing 33

ORDER: (1) GRANTING DEFENDANT'S MOTION TO DISMISS 15 ; AND (2) GRANTING PLAINTIFF LEAVE TO AMEND COMPLAINT. Signed by CHIEF JUDGE J. MICHAEL SEABRIGHT on 10/26/2016. (afc) Excerpt of Conclusion:"Defendant's Motion to Dismiss is GRANTED for failure to state a claim pursuant to Rule 12(b)(6). Specifically, Plaintiff's § 1635(b) claim is DISMISSED without leave to amend. Plaintiff's Request for Leave to Amend Compla int to assert fraud claims is GRANTED. Plaintiff may file an amended complaint by November 18, 2016. Failure to file an amended complaint by November 18, 2016 will result in dismissal of this action with prejudice for failure to state a claim ."WRITTEN ORDER follows hearing held 10/24/2016 on Defendant's Motion to Dismiss. Minutes of hearing: doc. no. 32 . ORDER further addresses 22 Defendant's Request to Strike Plaintiff's Exhibit 4 in docket entry no. 20 . The Court STRIKES Plaintiff's Exhibit 4, ECF No. 20-4. 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). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
MARGOT MARIA SLUKA,

CIV. NO. 16-00357 JMS-KSC

Plaintiff,
vs.
RUSHMORE LOAN MANAGEMENT
SERVICES, LLC,

ORDER: (1) GRANTING
DEFENDANT’S MOTION TO
DISMISS; AND (2) GRANTING
PLAINTIFF LEAVE TO AMEND
COMPLAINT

Defendant.

ORDER: (1) GRANTING DEFENDANT’S MOTION TO DISMISS; AND
(2) GRANTING PLAINTIFF LEAVE TO AMEND COMPLAINT
I. INTRODUCTION
On June 29, 2016, Plaintiff Margot Maria Sluka (“Plaintiff”) filed a
Complaint for Declaratory Relief against Defendant Rushmore Loan Management
Services, LLC (“Defendant”), seeking an order declaring that Plaintiff’s mortgage
loan is rescinded, and requiring Defendant to return all payments made on the
mortgage loan, cease further collection actions including foreclosure, remove all
reports of Plaintiff’s debt obligation on the mortgage from collection agencies, and
return the original promissory note.
Currently before the court are (1) Defendant’s Motion to Dismiss
With Prejudice Plaintiff’s Complaint, or Alternatively, For a More Definite
Statement (“Motion to Dismiss”), and (2) Plaintiff’s Request for Leave to Amend

Complaint. For the reasons discussed below, the court GRANTS the Motion to
Dismiss, and GRANTS Plaintiff’s Request for Leave to Amend Complaint.
II. BACKGROUND
As alleged in the Complaint, on March 23, 2007, Plaintiff executed a
promissory note for $224,000 in favor of Taylor, Bean & Whitaker Mortgage
(“TBWM”), which is secured by a mortgage on her home located at 75-5873
Walua Road #B-218, Kailua-Kona, Hawaii (the “subject property”). ECF No. 1,
Compl. at 2. Sometime thereafter, Plaintiff allegedly learned that the “mortgage
loan was an undisclosed securities transaction” in which TBWM purchased the
note and mortgage for resale into a real estate mortgage backed security trust
offered by Federal Home Loan Mortgage Corporation (“Freddie Mac”). Id. Upon
learning of this alleged “fraud,” Plaintiff requested the return of certain documents,
“revoked all signatures on the Mortgage document,” and in December 2009,
stopped making payments on the mortgage loan. Id. at 3.
On June 3, 2016, Plaintiff sent Defendant notice of her intent to
rescind the mortgage loan immediately, requested the return of all monies Plaintiff
paid on the loan and tendered the subject property, pursuant to 15 U.S.C. § 1635.
ECF No. 1-1, Pl.’s Ex. 1. Defendant allegedly failed to “return[] all monies
[Plaintiff] paid to [the mortgage loan] account . . . and take[] possession of the

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property within . . . 20 days from receipt [of the notice of intent to rescind] as
required by [15 U.S.C. ] § 1635(b).” ECF No. 1-3, Pl.’s Ex. 3.
On June 29, 2016, Plaintiff filed her Complaint for Declaratory Relief.
ECF No. 1. Defendant filed the instant Motion to Dismiss on September 7, 2016.
ECF No. 15. Plaintiff filed a Response on October 3, 2016,1 ECF No. 20, and on
October 11, 2016, Defendant filed a Reply, ECF No. 22. On October 12, 2016,
Plaintiff filed a Motion for Continuance to Amend Complaint. ECF No. 23.
Defendant filed a response in opposition to a continuance on October 13, 2016,
ECF No. 25, and Plaintiff filed a reply to that opposition on October 21, 2016, ECF
No. 31. On October 17, 2016, the court denied a continuance, but indicated that it
would address Plaintiff’s request for leave to file an amended complaint at the
hearing on Defendant’s Motion to Dismiss. ECF No. 26. These matters were
heard on October 24, 2016.
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Attached to Plaintiff’s Response is an Affidavit of Patrick F. Williams, purporting to
offer expert testimony in connection with Plaintiff’s mortgage documents. ECF No. 20-4, Pl.’s
Ex. 4. Consideration of this type of evidence is not proper when reviewing a motion to dismiss
under Federal Rule of Civil Procedure 12(b)(6). See United States v. Ritchie, 342 F.3d 903, 908
(9th Cir. 2003) (explaining that courts may only “consider certain materials -- documents
attached to the complaint, documents incorporated by reference in the complaint, or matters of
judicial notice -- without converting the motion to dismiss into a motion for summary
judgment”). Accordingly, the court strikes Plaintiff’s Exhibit 4, ECF No. 20-4.

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III. STANDARDS OF REVIEW
A.

Rule 12(b)(6)
Federal Rule of Civil Procedure 12(b)(6) permits a motion to dismiss

for “failure to state a claim upon which relief can be granted[.]” “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.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007)); see also Weber v. Dep’t of Veterans Affairs, 521 F.3d 1061, 1065 (9th Cir.
2008). This tenet -- that the court must accept as true all of the allegations
contained in the complaint -- “is inapplicable to legal conclusions.” Iqbal, 556
U.S. at 678. Accordingly, “[t]hreadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” Id. (citing
Twombly, 550 U.S. at 555); see also Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir.
2011) (“[A]llegations in a complaint or counterclaim may not simply recite the
elements of a cause of action, but must contain sufficient allegations of underlying
facts to give fair notice and to enable the opposing party to defend itself
effectively.”).
Rather, “[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, 556 U.S. at 678
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(citing Twombly, 550 U.S. at 556). Factual allegations that only permit the court to
infer “the mere possibility of misconduct” do not show that the pleader is entitled
to relief as required by Rule 8. Iqbal, 556 U.S. at 679.
B.

Pro Se Pleadings
Because Plaintiff is proceeding pro se, the court liberally construes

her Complaint. See Erickson v. Pardus, 551 U.S. 89, 94 (2007); Eldridge v. Block,
832 F.2d 1132, 1137 (9th Cir. 1987) (per curiam). The court also recognizes that
“[u]nless it is absolutely clear that no amendment can cure the defect . . . a pro se
litigant is entitled to notice of the complaint’s deficiencies and an opportunity to
amend prior to dismissal of the action.” Lucas v. Dep’t of Corr., 66 F.3d 245, 248
(9th Cir. 1995); see also Crowley v. Bannister, 734 F.3d 967, 977-78 (9th Cir.
2013). A court may, however, deny leave to amend where further amendment
would be futile. See, e.g., Leadsinger, Inc. v. BMG Music Pub., 512 F.3d 522, 532
(9th Cir. 2008) (reiterating that a district court may deny leave to amend for,
among other reasons “repeated failure to cure deficiencies by amendments
previously allowed . . . [and] futility of amendment”).
IV. DISCUSSION
A.

Motion to Dismiss
Plaintiff claims that Defendant violated the Truth in Lending Act

(“TILA”), which is codified at 15 U.S.C. § 1601 et seq. When a lender fails to
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make the required disclosures, TILA grants borrowers the right to rescind the loan
agreement by providing the creditor written notice of intent to rescind. 15 U.S.C.
§ 1635(a). This right to rescind expires three years after the loan is consummated.
Id. § 1635(f). And “[w]ithin 20 days after receipt of a notice of rescission, the
creditor shall return to the obligor any money . . . given . . . [and] the obligor shall
tender the property to the creditor[.]” Id. § 1635(b). “If the creditor does not take
possession of the property within 20 days after tender by the obligor, ownership of
the property vests in the obligor without obligation on his part to pay for it.” Id.
Plaintiff contends that because Defendant failed to take possession of
the subject property within twenty days after receiving her notice of intent to
rescind, the loan is rescinded and Plaintiff is entitled to retain the subject property
without further financial obligation. Plaintiff is mistaken.
“[Section]1635(f) is a statute of repose that represents an absolute
three-year bar on rescission actions.” McOmie-Gray v. Bank of Am. Home Loans,
667 F.3d 1325, 1329 (9th Cir. 2012) (citing Miguel v. Country Funding Corp., 309
F.3d 1161, 1164 (9th Cir. 2003)); see also Mohanna v. Bank of Am., N.A., 2016
WL 1729996, at *4 (N.D. Cal. May 2, 2016) (“A borrower’s right to seek
rescission under TILA is subject to a three-year statute of repose. Any attempt to
rescind more than three years after the date of the ‘consummation of the
transaction’ is absolutely time-barred.”) (quoting Jesinoski v. Countrywide Home
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Loans, Inc., 135 S. Ct. 790, 792 (2015)). Here, there is no dispute that Plaintiff
sent her notice of intent to rescind more than nine years after executing her
mortgage loan, well after the expiration of any statutory right to rescind. Thus,
Plaintiff’s notice of intent to rescind is a nullity, has no meaning under the statute,
and does not entitle Plaintiff to an order declaring her mortgage loan rescinded.
Apparently recognizing that she is time-barred from seeking
rescission, Plaintiff bases her claim on Defendant’s alleged failure to fulfill its
statutory obligations. Plaintiff argues that (1) “[u]nder 15 [U.S.C.] § 1635(b), a
creditor has an obligation to take possession of a property that has been tendered
within 20 days after receipt of a notice of rescission from the debtors[,]” and
(2) therefore, the “issue here is NOT whether [she was] eligible for a rescission
under 15 [U.S.C.] § 1635, but rather, [that] the Defendant and/or Owner of the
Note fail[ed] to take possession of the property that was tendered unconditionally.”
ECF No. 1, Compl. at 3. In other words, Plaintiff claims that Defendant’s failure
to respond to her notice of rescission within 20 days entitles her to rescission even
though the notice is time-barred. Plaintiff is wrong for two reasons.
First, because Plaintiff’s notice of intent to rescind fell outside of the
three-year statute of repose, § 1635(b) places no obligation on a lender. That is,
the lender was not required to respond to the late-filed notice of rescission. See
Lohse v. Deutsche Bank Trust Co. Americas as Trustee for Residential Accredit
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Loans, Inc. Pass Through Certificates 2006-Q03, et al., 2016 WL 1322891, at *4
(E.D. Cal. Apr. 4, 2016) (rejecting plaintiff’s “contention that defendants’ failure
to respond to their . . . rescission letter within twenty days resulted in a waiver of
their right to contest plaintiff’s rescission under TILA,” and noting that “TILA
does not impose an obligation on the lender to [take action] within twenty days
where the borrower provides the notice of rescission outside the three-year
statutory period.”) (citations omitted).
And, second, in any event, the statute is not self-effectuating and
imposes no automatic obligation on Defendant to rescind the mortgage loan. See
McOmie-Gray, 667 F.3d at 1327; see also Am. Mortg. Network, Inc. v. Shelton,
486 F.3d 815, 821 (4th Cir. 2007) (holding that a borrower’s “unilateral
notification of cancellation does not automatically void the loan contract” under
TILA); Yamamoto v. Bank of N.Y., 329 F.3d 1167, 1172 (9th Cir. 2003) (rejecting
argument that rescission is “accomplished automatically upon . . . communicat[ion
of] a notice of rescission, without regard to whether the law permits [rescission] on
the grounds asserted”). Construing the statute otherwise “would give TILA
claimants ‘the right to simply walk away with a windfall . . . without any further
obligation,’ a result certainly not intended by Congress.” Bradford v. HSBC
Mortg. Corp., 838 F. Supp. 2d 424, 429 (E.D. Va. 2012) (quoting Shelton, 486
F.3d at 820).
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For these reasons, the court finds that Plaintiff has failed to state a
claim upon which relief can be granted. Any attempt to amend her TILA claim
would be futile. Accordingly, Plaintiff’s claim for declaratory and injunctive relief
based on Defendant’s alleged violation of § 1635(b) is DISMISSED with
prejudice.
B.

Leave to Amend
Plaintiff seeks leave to amend the Complaint “to include additional

counts pertinent to the requested Declaratory Relief.” ECF No. 23, Pl.’s Mot. at 1.
During the hearing, Plaintiff clarified that she seeks to amend her Complaint to
allege fraud claims in connection with her mortgage loan. Plaintiff did not specify
against whom she would assert fraud claims and upon what specific facts.
Nevertheless, the court cannot say at this time that such amendment would be
futile. Accordingly, Plaintiff’s request for leave to amend her Complaint is
GRANTED.
Plaintiff may file an amended complaint on or before November 18,
2016, and must comply with the Federal Rules of Civil Procedure and the Local
Rules for the District of Hawaii. The amended complaint must be designated as a
“First Amended Complaint.” Plaintiff must allege specific facts showing how each
defendant committed fraud, and how such fraud is directly connected to Plaintiff’s

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mortgage loan. In short, Plaintiff must tie each defendant’s alleged fraud to her
loan -- general allegations of fraud in the mortgage marketplace will not suffice.
However, Plaintiff need not reallege her §1635(b) claim. Because it
was dismissed with prejudice, it is preserved for any future appeal. See Lacey v.
Maricopa Cty., 693 F.3d 896, 928 (9th Cir. 2012) (“[C]laims dismissed with
prejudice [need not] . . . be repled in a[n] amended complaint to preserve them for
appeal.”).
V. CONCLUSION
Based on the foregoing, Defendant’s Motion to Dismiss is
GRANTED for failure to state a claim pursuant to Rule 12(b)(6). Specifically,
Plaintiff’s § 1635(b) claim is DISMISSED without leave to amend. Plaintiff’s
Request for Leave to Amend Complaint to assert fraud claims is GRANTED.
Plaintiff may file an amended complaint by November 18, 2016. Failure to file an
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amended complaint by November 18, 2016 will result in dismissal of this action
with prejudice for failure to state a claim.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, October 26, 2016.

/s/ J. Michael Seabright
J. Michael Seabright
Chief United States District Judge

Sluka v. Rushmore Loan Management Services, LLC, Civ. No. 16-00357 JMS-KSC, Order:
(1) Granting Defendant’s Motion To Dismiss; and (2) Granting Plaintiff Leave To Amend
Complaint

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