Kelley v. Mortg. Electronic Registration Systems
| Decision Date | 12 August 2009 |
| Docket Number | No. C 09-01538 SI.,C 09-01538 SI. |
| Citation | 642 F.Supp.2d 1048 |
| Parties | Stephen KELLEY and Kathy Kelley, Plaintiffs, v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., et al., Defendants. |
| Court | U.S. District Court — Northern District of California |
Renee Marguerite Marcelle, Law Offices of Renee M. Marcelle, San Rafael, CA, for Plaintiffs.
Justin D. Balser, Akerman Senterfitt LLP, Frederick Alan Haist, Palmer, Lombardi & Donohue LLP, Los Angeles, CA, Justin Donald Balser, Akerman Senterfitt LLP, Denver, CO, Geoffrey Chester Brethen, Houser and Allison, Irvine, CA, Robin Prema Wright, Wright Finlay & Zak, LLP, Newport Beach, CA, for Defendants.
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS WITH LEAVE TO AMEND
Defendants Aurora Loan Services, Inc.; Aurora Bank FSB, formerly known as Lehman Brothers Bank FSB; and Mortgage Electronic Registration Systems have filed motions to dismiss plaintiffs' First Amended Complaint. Plaintiffs have filed a motion for a preliminary injunction. The motions are scheduled for hearing on August 14, 2009. Pursuant to Civil Local Rule 7-1(b), the Court finds these matters appropriate for resolution without oral argument and VACATES the hearing and the case management conference scheduled for the same day. Having considered the papers submitted, and for good cause shown, the Court GRANTS defendants' motions with leave to amend and DENIES plaintiffs' motion. If plaintiffs choose to file an amended complaint, they must do so by September 4, 2009.
On March 28, 2006, plaintiffs bought a property at 4173 Barnes Road in Santa Rosa, California. They financed the purchase with a loan for $894,000 from Homecomings Financial Network, Inc. ("Homecomings"). Def. MERS' Request for Judicial Notice (MERS Request), ex. A.1 Plaintiffs obtained an adjustable rate mortgage, meaning that they were charged a variable interest rate. Plaintiffs allege that the initial interest rate was 7.750%.2
The gravamen of plaintiffs' complaint is that plaintiffs entered into this loan with Homecomings because they relied on material misrepresentations about the loan. For example, Homecomings allegedly overstated the value of the property by $250,000 and misstated plaintiffs' income. Homecomings also made false statements about plaintiffs' obligations under the loan and did not explain how an adjustable rate mortgage is structured.
After the mortgage transaction was consummated, Homecomings sold the loan to defendant Aurora Loan Services, LLC ("Aurora"). On May 21, 2008, defendant Cal-Western Reconveyance Corp. ("Cal-Western") issued a notice of default, which stated that as of that date, plaintiffs were in default in the sum of $12,364.48. MERS Request, ex. B.
On September 18, 2008, plaintiffs signed a "workout agreement" with Aurora. Def. Aurora's Request for Judicial Notice (Aurora Request), ex. 3. The agreement provided that plaintiffs were $28,859.63 in arrears (from $25,888.11 in unpaid monthly payments and the remainder from legal fees and "corporate advances"). Id. The agreement also provides, "Customer admits that the Arrearage is correct and is currently owing under the Loan Documents, and represents, agrees and acknowledges that there are no defenses, offsets, or counterclaims of any nature whatsoever to any of the Loan Documents or any of the debt evidenced or secured thereby." Id. ¶ 3. The workout agreement set out a payment plan, whereby plaintiffs would make an initial payment of $4000, followed by monthly payments of $3,162.20 in October and November 2008, and $28,504.08 in December 20008. Id., appendix A ¶ a.1.
On January 26, 2009, Cal-Western issued a notice stating that the Barnes Road property would be auctioned at a trustee's sale on February 23, 2009. Id., ex. C.
Plaintiffs filed a complaint in Sonoma County Superior Court on March 24, 2009. Plaintiffs alleged fifteen causes of action, including claims under the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., and the Real Estate and Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq. Aurora invoked federal question jurisdiction and removed to this Court on April 8, 2009. Now before the Court are motions to dismiss filed by Aurora and Mortgage Electronic Registration Systems ("MERS").
Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007). While courts do not require "heightened fact pleading of specifics," id., a plaintiff must provide "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do," id. at 1965. Plaintiff must allege facts sufficient to "raise a right to relief above the speculative level." Id. In deciding whether the plaintiff has stated a claim upon which relief can be granted, the Court must assume that the plaintiff's allegations are true and must draw all reasonable inferences in the plaintiff's favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir.1987). However, the court is not required to accept as true "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." St. Clare v. Gilead Scis., Inc., 536 F.3d 1049, 1055 (9th Cir.2008).
If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The Ninth Circuit has "repeatedly held that a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir.2000) (citations and internal quotation marks omitted).
Defendants ask the Court to take judicial notice of the following documents related to the mortgage agreement at issue in this case: (1) the deed of trust, (2) the notice of default, (3) the notice of trustee's sale, see MERS Request, exs. A-C, (4) the promissory note, and (5) the workout agreement, see Aurora Request, exs. 1, 3. Aurora also asks the Court to take judicial notice of Lehman Brothers Bank's federal stock charter. See Aurora Request, ex. 4. Finally, MERS requests that the Court take judicial notice of complaints filed in state court. See MERS Request, exs. D, E, F. Plaintiffs do not object to these requests.
The Court finds that these documents are suitable matter for judicial notice and GRANTS defendants' request pursuant to Federal Rule of Evidence 201.
Aurora Bank is a federally chartered savings bank; Aurora Loan Services, Inc., is its wholly owned subsidiary.3 See Aurora Request, exs. 4, 5. Aurora argues that plaintiffs' claims for violations of California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof.Code § 17200 et seq. (claims 1 and 7), fraud (claims 2 and 6) and conversion (claim 4) are preempted by the Home Owners' Loan Act ("HOLA"), 12 U.S.C. § 1461 et seq., and the regulations promulgated pursuant to that statute by the Office of Thrift Supervision ("OTS"). HOLA was enacted in 1933 to regulate federally charted savings associations. It was a "`radical and comprehensive response to the inadequacies of the existing state system,' and [is] `so pervasive as to leave no room for state regulatory control.'" Silvas v. E*Trade Mortg. Corp., 514 F.3d 1001, 1004 (9th Cir.2008) (citing Conference of Fed. Sav. & Loan Ass'ns v. Stein, 604 F.2d 1256, 1257, 1260 (9th Cir. 1979)).
Pursuant to 12 U.S.C. § 1464, the OTS issued 12 C.F.R. § 560.2, which provides that certain types of state laws are preempted by HOLA. Paragraph (b) of § 560.2 provides a non-exhaustive list of such laws, including state laws that purport to impose requirements regarding:
(4) The terms of credit, including amortization of loans and the deferral and capitalization of interest and adjustments to the interest rate, balance, payments due, or term to maturity of the loan, including the circumstances under which a loan may be called due and payable upon the passage of time or a specified event external to the loan;
...
(9) Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents and laws requiring creditors to supply copies of credit reports to borrowers or applicants;
(10) Processing, origination, servicing, sale or purchase of, or investment or participation in, mortgages[.]
Paragraph (c) of § 560.2 provides that HOLA does not preempt state laws that "only incidentally affect the lending operations of Federal savings associations," including "contract and commercial law," "real property law," and "tort law." 12 C.F.R. § 560.2(c).
The OTS also describes the analytic framework courts should use when determining whether a state law is preempted by § 560.2:
When analyzing the status of state laws under § 560.2, the first step [is] to determine whether the type of law in question is listed in paragraph (b). If so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then ... the presumption arises that the law is preempted. This presumption can be reversed only if the law can clearly be shown to fit within the confines of paragraph (c). For these purposes, paragraph (c) is intended to be interpreted narrowly. Any doubt should be resolved in favor of preemption.
OTS, Final Rule, 61 Fed. Reg. 50951, 50966-67 (Sept. 30, 1996) (cited in Silvas, 514 F.3d at 1005)....
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