Andersen v. Homecomings Financial et al
Filing
35
MEMORANDUM DECISION AND ORDER granting 29 Homecomings' Motion to Dismiss the Sixth Cause of Action in Plaintiff's Complaint. Signed by Judge Ted Stewart on 08/17/2011. (tls)
IN THE UNITED STATES COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
SCOTT M. ANDERSEN, an individual,
Plaintiff,
MEMORANDUM DECISION AND
ORDER GRANTING DEFENDANT
HOMECOMINGS’ MOTION TO
DISMISS THE SIXTH CAUSE OF
ACTION IN PLAINTIFF’S
COMPLAINT
v.
Case No. 2:11-CV-332-TS
HOMECOMINGS FINANCIAL, LLC F/K/A
HOMECOMINGS FINANCIAL
NETWORK, INC., Deleware limited liability
company; AURORA LOAN SERVICES,
LLC, a limited liability company;
MORTGAGE ELECTRONIC
REGISTRATION SYSTEMS, INC., a
Deleware corporation; JAMES H.
WOODALL, an individual; and DOES 1-10,
Judge Ted Stewart
Defendants.
This matter is before the Court on defendant Homecomings Financial, LLC FKA
Homecomings Financial Network’s (“Homecomings”) Motion to Dismiss the Sixth Cause of
Action in Plaintiff’s Amended Complaint.1 For the reasons discussed below, the Court will grant
Homecomings’ Motion.
1
Docket No. 29.
1
I. BACKGROUND
Plaintiff’s Amended Complaint alleges that, on October 16, 2006, Plaintiff executed a
Promissory Note (the “Note”) with Homecomings in order to refinance property located in
Orem, Utah.2 The Note named Homecomings as the lender and Plaintiff granted Homecomings
a deed of trust (the “Deed of Trust”) in conjunction with the note that was recorded on the
property on November 13, 2006.3 The refinance loan was in the principal amount of
$346,500.00, of which, $14,256.00 was fees. Plaintiff used $61,020.38 to pay off an unsecured
creditor and received a cash out of $1,567.03.
Plaintiff alleges that during the underwriting process Homecomings: (1) failed to disclose
that it paid a broker a yield spread premium payment of $11,261.25; (2) charged a rate 2.1875%
higher than Plaintiff qualified for; and (3) charged a different finance charge then disclosed in
Plaintiff’s Truth in Lending Act disclosures. Plaintiff also alleges that Homecomings did not
exercise the requisite diligence in the underwriting process because it did not collect
documentation regarding Plaintiff’s actual income and allegedly relied upon the value of the
property as a guarantee of payment.4
On July 10, 2009, a notice of default was recorded indicating that Plaintiff was in default
on his obligations under the Deed of Trust.5
2
Docket No. 2-1, at 3.
3
Id.
4
The Court notes that the majority of Plaintiff’s allegations with regard to “Material
Misrepresentations Regarding the Terms of the Loan,” are premised on a forensic audit of the
loan transaction which Plaintiff attaches to his Amended Complaint.
5
Id. at Ex. D.
2
On April 23, 2010, Plaintiff caused a “Notice of Superseding Successor of Trustee and
Appointment” against the property, purporting to replace the trustee with “Rocky Mountain Title
Associates.”6 Plaintiff also caused to be recorded against the property—allegedly pursuant to
admiralty law—an “Affidavit of Obligation Commercial Lien” (describing a $40,131,692.00 lien
allegedly owed by Defendant Aurora) and a Notice of Lis Pendens.7
The Court previously dismissed the first five causes of action in Plaintiff’s Amended
Complaint, leaving only the sixth cause of action against Homecomings to be resolved in this
Motion.
II. STANDARD OF REVIEW
In considering a motion to dismiss under Rule 12(b)(6), all well-pleaded factual
allegations, as distinguished from conclusory allegations, are accepted as true and viewed in the
light most favorable to Plaintiff as the nonmoving party.8 Plaintiff must provide “enough facts to
state a claim to relief that is plausible on its face.”9 All well-pleaded factual allegations in the
amended complaint are accepted as true and viewed in the light most favorable to the nonmoving
party.10 But, the court “need not accept . . . conclusory allegations without supporting factual
6
Docket No. 2, Ex E. (“Memorandum in Opposition to Motion for Injunctive Relief”).
7
Id.
8
Ruiz v. McDonnell, 299 F.3d 1173, 1181 (10th Cir. 2002).
9
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547 (2007).
10
GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1384 (10th Cir.
1997).
3
averments.”11 “The court’s function on a Rule 12(b)(6) motion is not to weigh potential
evidence that the parties might present at trial, but to assess whether the plaintiff’s complaint
alone is legally sufficient to state a claim for which relief may be granted.”12 The Supreme Court
has explained that a plaintiff must “nudge[ ][his] claims across the line from conceivable to
plausible” to survive a motion to dismiss.13
Thus, the mere metaphysical possibility that some plaintiff could prove some set
of facts in support of the pleaded claims is insufficient; the complaint must give
the court reason to believe that this plaintiff has a reasonable likelihood of
mustering factual support for these claims.14
The Supreme Court recently provided greater explanation of the standard set out in
Twombly in Ashcroft v. Iqbal.15 In Iqbal, the Court reiterated that while FED.R.CIV.P. 8 does not
require detailed factual allegations, it nonetheless requires “more than unadorned, the-defendantunlawfully harmed-me accusation[s].”16 “A pleading that offers ‘labels and conclusions’ or ‘a
formulaic recitation of the elements of a cause of action will not do.’”17 “Nor does a complaint
suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”18
11
S. Disposal, Inc., v. Tex. Waste, 161 F.3d 1259, 1262 (10th Cir. 1998); Hall v. Bellmon,
935 F.2d 1106, 1110 (10th Cir. 1991).
12
Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991).
13
Twombly, 550 U.S. at 547.
14
The Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007)
(emphasis in original).
15
129 S.Ct. 1937 (2009).
16
Id. at 1949.
17
Id. (quoting Twombly, 550 U.S. at 555).
18
Id. (quoting Twombly, 550 U.S. at 557).
4
The Court in Iqbal stated:
Two working principles underlie our decision in Twombly. First, the tenet
that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions. Threadbare recitals of the elements of a cause
of action, supported by mere conclusory statements, do not suffice. Rule 8 marks
a notable and generous departure from the hyper-technical, code-pleading regime
of a prior era, but it does not unlock the doors of discovery for a plaintiff armed
with nothing more than conclusions. Second, only a complaint that states a
plausible claim for relief survives a motion to dismiss. Determining whether a
complaint states a plausible claim for relief will . . . be a context-specific task that
requires the reviewing court to draw on its judicial experience and common sense.
But where the well-pleaded facts do not permit the court to infer more than the
mere possibility of misconduct, the complaint has alleged—but it has not
show[n]—that the pleader is entitled to relief.
In keeping with these principles a court considering a motion to dismiss
can choose to begin by identifying pleadings that, because they are no more than
conclusions, are not entitled to the assumption of truth. While legal conclusions
can provide the framework of a complaint, they must be supported by factual
allegations. When there are well-pleaded factual allegations, a court should
assume their veracity and then determine whether they plausibly give rise to an
entitlement to relief.19
In considering the adequacy of a plaintiff’s allegations in a complaint subject to a motion
to dismiss, a district court not only considers the complaint, but also “documents incorporated
into the complaint by reference, and matters of which a court may take judicial notice.”20 Thus,
“notwithstanding the usual rule that a court should consider no evidence beyond the pleadings on
a Rule 12(b)(6) motion to dismiss, ‘[a] district court may consider documents referred to in the
19
Id. at 1949-50 (internal quotation marks and citations omitted).
20
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007) (citing 5B
WRIGHT & MILLER § 1357 (3d ed. 2004 and Supp. 2007)).
5
complaint if the documents are central to the plaintiff’s claim and the parties do not dispute the
documents’ authenticity.’”21
III. DISCUSSION
Plaintiff alleges to have “suffered damages because of Homecomings’ careless or
negligent misrepresentations.”22 Homecomings contends that Plaintiff’s claim should be
dismissed because (1) Plaintiff does not state the prima facie elements of a claim for negligent
misrepresentation; (2) Plaintiff has not satisfied the particularity requirements of Fed.R.Civ.P.
9(b); and (3) Plaintiff’s negligent misrepresentation claim is barred by the economic loss rule.
A.
PRIMA FACIE ELEMENTS
Plaintiff alleges that Homecomings has a pecuniary interest in the property and that
Homecomings carelessly or negligently misrepresented material terms of the refinance loan into
which it entered with Plaintiff. Homecomings contends that Plaintiff’s claim fails because
Plaintiff has not demonstrated what the alleged misrepresentations were, how such
misrepresentations were material, how Plaintiff relied on the misrepresentations or how that
reliance was reasonable.
“Under Utah law, to prove negligent misrepresentation several elements must be shown:
(1) the plaintiffs reasonably relied on the defendant's representation, (2) the representation
constitutes a “careless or negligent misrepresentation of a material fact,” (3) the defendant “had a
pecuniary interest in the transaction,” (4) the defendant “was in a superior position to know the
21
Alvarado v. KOBTV, LLC, 493 F.3d 1210, 1215 (10th Cir. 2007) (quoting Jacobsen v.
Deseret Book Co., 287 F.3d 936, 941 (10th Cir. 2002)).
22
Docket No. 2-1, at 36-37.
6
material facts,” and (5) the defendant “should have reasonably foreseen that the injured party
was likely to rely upon the misrepresentation.”23
The Court agrees with Homecomings. Plaintiff appears to argue that the Court should
infer, based on Plaintiff’s allegations, that Homecomings made a careless or negligent
misrepresentation of material fact. However, even if the Court were willing to make such an
inference, Plaintiff has not plead facts to demonstrate that he relied on any alleged statement by
Homecomings. Therefore, Plaintiff has failed to plead facts sufficient to maintain a cause of
action for negligent misrepresentation.
B.
PARTICULARITY REQUIREMENTS
Homecomings also alleges that Plaintiff’s Complaint includes only a mere recitation of
the elements of fraud and thus does not satisfy the particularity requirements of Fed.R.Civ.P.
9(b). Plaintiff contends that he has stated with particularity that the yield spread premium was
not adequately and honestly disclosed, the actual finance charges and calculation required by the
Truth in Lending Act were not disclosed and that Homecomings accepted an allegedly inflated
appraisal value.
Because negligent misrepresentation constitutes a form of fraud,24 the requirements of
Fed.R.Civ.P. 9(b) apply even though the claim is not technically a claim for fraud.25 Rule 9(b)
requires a party to “state with particularity the circumstances constituting fraud”26 and this
23
Mitchell v. Smith, 2010 WL 5172906, at *8 (D. Utah Dec. 14, 2010) (quoting PriceOrem Inc. Co. v. Rollins, Brown & Gunnel, Inc., 713 P.2d 55, 59 (Utah 1986)).
24
See Atkinson v. IHC Hosps. Inc., 798 P.2d 733, 737 (Utah 1990).
25
See Coroles v. Sabey, 79 P.3d 974 (Utah Ct. App. 2003).
26
Fed.R.Civ.P. 9(b).
7
particularity requirement is not met by a mere recitation of the elements of fraud or by
conclusory allegations that are not supported by relevant facts.27
In the instant case, Plaintiff has alleged each of the elements for negligent
misrepresentation. However, while Plaintiff properly recites the elements of negligent
misrepresentation, he does not plead facts sufficient to meet the particularity requirements of
Rule 9(b). Mere allegations of the correct language are not sufficient to maintain an action for
negligent misrepresentation. For this reason, the Court finds that Plaintiff has failed to meet the
particularity requirements of Rule 9(b).
C.
ECONOMIC LOSS RULE
Finally, Homecomings argues that Plaintiff’s claim is barred by the economic loss rule.
Plaintiff argues that the economic loss rule does not bar recovery because Homecomings violated
an independent duty under the Uniform Commercial Code § 4-103 (“UCC § 4-103”).28
“The economic loss rule is a judicially created doctrine that marks the fundamental
boundary between contract law, which protects expectancy interests created through agreement
between the parties, and tort law, which protects individuals and their property from physical
harm by imposing a duty of reasonable care.”29
27
See Hoverman v. CitiMortgage, 2011 WL 3421406, at *5 (D. Utah Aug. 4, 2011).
28
Plaintiff asserts that the Utah Supreme Court—in Arrow Industries, Inc. v. Zions
National Bank, 767 P.2d 935 (Utah 1998)—made applicable UCC § 4-103 to all banking
transactions. The Court does not agree that the Arrow court’s application of UCC § 4-103 to
banking transactions implies an independent duty in a case involving a refinance of real
property.
29
SME Indus., Inc. v. Thompson, Ventulett, Stainback and Assocs., Inc., 28 P.3d 669, 679
(Utah 2001).
8
The economic loss rule serves two purposes. First, it bars recovery of economic
losses in negligence actions unless the plaintiff can show physical damage to
other property or bodily injury. Second, the economic loss rule prevents parties
who have contracted with each other from recovering beyond the bargained-for
risks.30
Here, Plaintiff is barred from recovering beyond the bargained-for risks as contained in
the Note and Deed of Trust. Plaintiff has not alleged physical damage to himself or his physical
property. Moreover, the Court finds Plaintiff’s argument for imposition of an independent duty
under UCC 4-103 inapplicable to the facts of this case. As such, had Plaintiff stated a proper
claim for negligent misrepresentation, it would be barred by the economic loss rule.
III. CONCLUSION
For the foregoing reasons, Homecomings’ Motion to Dismiss the Sixth Cause of Action
in Plaintiffs’ Amended Complaint (Docket No. 29) is GRANTED and Plaintiff’s Complaint is
dismissed with PREJUDICE. The Clerk of Court is directed to close this case forthwith.
DATED August 17, 2011.
BY THE COURT:
____________________________________
TED STEWART
United States District Judge
30
Sunridge Dev. Corp. v. RB&G Eng’g, Inc., 230 P.3d 1000, 1006 (Utah 2010) (internal
quotations omitted).
9
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