Olivera v. AMERIACAN HOME MORTG. SERVICING, INC., Case No. C 09-3616 SBA.

• Decision Date: 22 January 2010
• Docket Number: Case No. C 09-3616 SBA.
• Citation: 689 F. Supp.2d 1218
• Court: U.S. District Court — Northern District of California
• Parties: Joseph OLIVERA, an individual, and Jacqueline Julty, an individual, Plaintiff, v. AMERICAN HOME MORTGAGE SERVICING, INC., a Delaware Corporation; American Brokers Conduit, a Delaware Limited Liability Company; Cal Coast Financial Corporation; a California Corporation, and Does 1 through 50, inclusive, 50, inclusive, Defendants.

689 F.Supp.2d 1218

Joseph OLIVERA, an individual, and Jacqueline Julty, an individual, Plaintiff, v. AMERICAN HOME MORTGAGE SERVICING, INC., a Delaware Corporation; American Brokers Conduit, a Delaware Limited Liability Company; Cal Coast Financial Corporation; a California Corporation, and Does 1 through 50, inclusive, 50, inclusive, Defendants.

Case No. C 09-3616 SBA.

United States District Court, N.D. California, Oakland Division.

January 22, 2010.

Stephen Paul Collette, Stephen P. Collette & Associates, Los Angeles, CA, for Plaintiff.

Nicholas Gregory Hood, Wright, Finlay & Zak, LLP, Newport Beach, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT AMERICAN HOME MORTGAGE SERVICING, INC.'S MOTION TO DISMISS PLAINTIFF'S COMPLAINT

SAUNDRA BROWN ARMSTRONG, District Judge.

Plaintiffs, Joseph Olivera and Jacqueline Julty, allege that various defendants, including American Home Mortgage Servicing, Inc. (AHMSI), violated the Truth in Lending Act (TILA) and California's Unfair Competition Law (UCL), Cal. Bus. & Prof.Code § 17200 et seq., in connection with the refinancing of their home. The parties are presently before the Court on AHMSI's Motion to Dismiss Complaint for Failure to State a Claim Upon Which Relief Can be Granted or In the Alternative, for a More Definite Statement. (Docket 6.) Having read and considered the papers filed in connection with this matter and being fully informed, the Court hereby GRANTS the motion IN PART and DENIES it IN PART. AHMSI's alternative motion for a more definite statement is DENIED as moot. The Court, in its discretion, finds this matter suitable for resolution without oral argument. See Fed. R.Civ.P. 78(b).

I. BACKGROUND

A. FACTUAL SUMMARY

The following facts are based on the allegations in the Complaint, which are presumed true for purposes of this motion. On an unspecified date, Plaintiffs received an unsolicited telephone call from a broker at Defendant Cal Coast Financial Corporation (Cal Coast), who attempted to convince them to refinance the mortgage on their home in Newark, California. (Compl. ¶ 12.) After a number of calls, Plaintiffs agreed to meet with the broker. (Id.) At their first meeting, the broker suggested that Plaintiffs apply for a POWER ARM Option Adjustable Rate Mortgage, which would allow them the flexibility of selecting the amount of their monthly mortgage payment. (Id.) The broker also represented that the maximum amount their monthly payment could be increased was only $50 per year. (Id.) However, the broker failed to warn Plaintiffs that the loan was a negative amortization loan; that is, a loan whose principle increases instead of decreases as in the case of a regular mortgage. (Id.)

On August 8, 2006, Plaintiffs obtained a POWER ARM loan, a closed-end consumer credit transaction. (Id. ¶ 10.) Under the terms of the loan, Plaintiffs borrowed $295,000 at an initial "teaser" interest rate of 1% per annum. (Id. ¶ 11.) This initial rate lasted only for three weeks, after which it increased to 7.63%. (Id.) The 7.63% rate remained in effect for only one month, after which time the rate increased "by adding 3.3% to the current index which . . . adjusted every single month thereafter." (Id.) Although the interest rate continually increased, the monthly mortgage payment was based on the 1% teaser rate, and the unpaid interest is added to the principal of the loan, thus resulting in negative amortization. (Id. ¶¶ 11, 14.)

Defendant American Brokers Conduit (ABC) originated the loan, allegedly with full knowledge that the loan documents did not comply with the TILA. (Id. ¶ 15.) Subsequently, Defendant AHMSI purchased and serviced the loan, also "fully aware" that the loan did not comply with the TILA. (Id.) On August 4, 2009, Plaintiffs, through their counsel, notified AHMSI in writing that they were rescinding the loan. (Id. ¶ 16.)

B. PROCEDURAL HISTORY

Plaintiffs filed the instant action in this Court on August 7, 2009, against AHMSI, ABC and Cal Coast.¹ In their Complaint, Plaintiffs allege two claims for relief for: (1) rescission pursuant to the TILA and Regulation Z, 12 C.F.R. § 226.1; and (2) violation of the UCL. Defendants allegedly violated these statutes by providing Plaintiffs with a "blank" Notice of Right to Cancel and by failing to disclose in their Truth in Lending Disclosure Statement ("Disclosure Statement") that the loan would negatively amortize. Plaintiffs seek rescission of the loan, injunctive relief and recovery of their attorneys' fees.

AHMSI has now filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), or alternatively, a motion for a more definite statement under Rule 12(f). AHMSI's motion is supported by request for judicial notice and a declaration of counsel, both of which are accompanied by various documents allegedly relating to ownership of AHMSI as well as the transaction at issue.² Plaintiffs have filed oppositions to AHMSI's motion to dismiss and its request for judicial notice.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 12(b)(6) authorizes a district court, upon motion of a party, to dismiss a claim for "failure to state a claim upon which relief can be granted." To survive a motion to dismiss for failure to state a claim, 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, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "Specific facts are not necessary; the statement need only give the defendants fair notice of what ... the claim is and the grounds upon which it rests." Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (internal quotation marks omitted); Johnson v. Riverside Healthcare System, LP, 534 F.3d 1116, 1122 (9th Cir.2008). The plaintiff must establish that the allegations are sufficient to push the asserted claim "across the line from conceivable to plausible." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1951, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955).

On a Rule 12(b)(6) motion, the facts alleged in the pleadings are accepted as true and the Court must "draw inferences in the light most favorable to the plaintiff." Barker v. Riverside County Office of Educ., 584 F.3d 821, 824 (9th Cir.2009). The Court's inquiry generally is limited to the allegations in the complaint. Lazy Y Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir.2008). "A court may, however, 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." United States v. Ritchie, 342 F.3d 903, 908 (9th Cir.2003). In the event dismissal is warranted, it is generally without prejudice, unless it is clear the complaint cannot be saved by any amendment. See Sparling v. Daou, 411 F.3d 1006, 1013 (9th Cir.2005).

III. DISCUSSION

A. TILA

"Congress enacted TILA `to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.'" Hauk v. JP Morgan Chase Bank USA, 552 F.3d 1114, 1118 (9th Cir.2009) (quoting 15 U.S.C. § 1601). To promote the purposes of TILA, its provisions must be "liberally" construed in favor of the consumer, and compliance by creditors must be "absolute." Id. Congress delegated the responsibility of developing regulations to carry out the purposes of TILA to the Federal Reserve Board ("Board"). 15 U.S.C. § 1604(a). In response, the Board promulgated "Regulation Z," 12 C.F.R. § 226.1, and published its interpretation of Regulation Z in the "Official Staff Interpretation," 12 C.F.R. pt. 226 Supp. I. McCoy v. Chase Manhattan Bank, USA, 559 F.3d 963, 969 n. 5 (9th Cir.2009). Courts must defer to the Board's interpretation of TILA unless that interpretation is obviously contrary to the statute. Hauk, 552 F.3d at 1118.

Under TILA, a borrower has two remedies for a loan disclosure violation: civil damages and rescission. 15 U.S.C. §§ 1640, 1635. With regard to rescission, TILA provides that borrowers have until midnight of the third business day following the consummation of a loan transaction to rescind the transaction. 15 U.S.C. § 1635(a). A borrower's right of rescission is extended from three days to three years if the lender (1) fails to provide notice of the borrower's right of rescission or (2) fails to make a material disclosure. See Miguel v. Country Funding Corp., 309 F.3d 1161, 1163 (9th Cir.2002) (citing 15 U.S.C. § 1635(f) and 12 C.F.R. § 226.23(a)(3)). Here, Plaintiffs seek rescission, but not damages, based on Defendants' alleged failure to a proper Notice of Right to Cancel and failure disclose the fact that the loan would negatively amortize. (E.g., Compl. ¶ 13-14: § IV (Prayer for Relief).³

1. Assignee/Servicer Liability

As a general rule, liability under TILA applies to creditors and their assignees. See 15 U.S.C. §§ 1640, 1641. Loan servicers cannot be held liable under TILA unless they owned the loan obligation at some point in time. 15 U.S.C. § 1641(f)(1) ("A servicer of a consumer obligation arising from a consumer credit transaction shall not be treated as an assignee of such obligation for purposes of this section unless the servicer is or was the owner of the obligation.") (emphasis added); Mulato v. WMC Mortg. Corp., 2009 WL 3561536 *6 (N.D.Cal., Oct. 27, 2009) ("As a loan servicer that has not been alleged to own Plaintiff's mortgage notes, Chase cannot be held liable for TILA violations.").

AHMSI contends that it cannot be held liable under TILA because it was merely a servicer, and not a creditor or assignee of a creditor. (Mot. at 4.)⁴ Although the Complaint expressly alleges that AHMSI "purchased and...