Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_10-cv-03309/USCOURTS-caed-2_10-cv-03309-2/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1132 E.R.I.S.A.

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

RUSTY KROUSE and BRENNA KROUSE, No. 2:10-cv-03309-MCE-EFB

Plaintiffs, 

v. MEMORANDUM AND ORDER

BAC HOME LOANS SERVICING, LP;

BANK OF AMERICA N.A.; and DOES

1 through 10, inclusive,

Defendants.

----oo0oo----

Plaintiffs Rusty Krouse and Brenna Krouse seek redress from

Defendants BAC Home Loans Servicing, LP and Bank of America, N.A.

(“Defendants” or “BoA”) based on claims of breach of contract,

breach of implied covenant of good faith and fair dealing,

promissory estoppel, violations of the Rosenthal Fair Debt

Collection Practices Act, violations of California’s Unfair

Competition Law, and violations of the Truth-In-Law Lending Act

(“TILA”) codified at 12 CFR Part 226 (“Regulation Z”).1

 Because oral argument will not be of material assistance, 1

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h). 

1

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 1 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Presently before the Court is Defendants’ Motion to Dismiss 

(“MTD”) Plaintiffs’ Second Amended Complaint for failure to state

a claim upon which relief may be granted pursuant to Federal Rule

of Civil Procedure 12(b)(6).2

BACKGROUND3

The Defendants in this matter are in the business of making

and servicing home mortgage and deed of trust loans. This 4

action arises out of a residential loan transaction involving

Plaintiffs’ real property. On December 19, 2007, Plaintiffs

procured a loan in the amount of $417,000, which was secured by a

Promissory Note and a Deed of Trust recorded on December 26,

2007. (MTD at 2). It is undisputed, that at the closing of the

loan transaction, Plaintiffs were provided with the Truth in

Lending Act disclosures, explaining the terms of their loan. 

(MTD at 2.) 

///

///

///

 Unless otherwise noted, all further references to Rule or 2

Rules are to the Federal Rules of Civil Procedure.

 The factual assertions in this section are based on the 3

allegations in Plaintiffs’ Second Amended Complaint, unless

otherwise specified. 

 “Mortgage” and “deed of trust” loans are essentially 4

synonymous. Where they differ is when the loan is defaulted and

sent to foreclosure. In a “mortgage,” servicers proceed through

a process called judicial foreclosure. A “deed of trust”

foreclosure requires a third-party trustee to complete the

foreclosure. Hereinafter, “mortgage” and “deed of trust” will be

used exchangeably. 

2

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 2 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Furthermore, it is undisputed that On December 19, 2007,

Plaintiffs received and signed two Notices of the Right to Cancel

(“NRC”), which were intended, among other things, to set out the

time reserved for Plaintiffs to rescind the loan agreement. (MTD

at 3.) 

In early 2009, Plaintiffs found it difficult to make their

obligated deed of trust payments. As a result, in April 2009,

Plaintiffs applied for a loan modification through the Home

Affordable Modification Program (“HAMP”), serviced by Bank of

America N.A. (“BoA”). 

 HAMP is a key initiative of the Troubled Asset Relief

Program (“TARP”)-a government program supplying U.S. financial

institutions with roughly $700 billion. The HAMP initiative

offers incentive funds to financial institutions for providing

mortgage loan modifications to eligible borrowers who are in

financial distress. Defendants are one of many institutions that

receive HAMP funds. Generally speaking, to qualify for a home

loan modification under HAMP: (1) the borrower requests HAMP loan

modification; (2) the servicer and borrower enter into Trial

Period Plan agreement; and (3) based on the borrower’s financial

information and Net Present Value (“NPV”), servicer will either

approve or deny borrower for the HAMP loan modification. If the

NPV produces a “negative” result (meaning losses to the servicer

from foreclosure are less than losses from modification), the

servicer is not obligated to modify the loan. However, under the

HAMP guidelines, if the NPV result is positive the servicer is

obligated to provide a loan modification.

///

3

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 3 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

In July 2009, after reviewing Plaintiffs’ financial

information, BoA informed Plaintiffs via a telephone conversation

that they had conditionally met the eligibility requirements to

qualify for a permanent loan modification under HAMP. As the

Plaintiffs allege, BoA also explained that if the Plaintiffs made

three timely trial period plan (“TPP”) payments of $2,345, then

BoA would provide a permanent loan modification. 

On August 23, 2009, Plaintiffs received a written, but

unsigned, TPP. The TPP explained how Plaintiffs were required to

make three timely TPP payments for the months of August, October,

and November 2009. Plaintiffs thereafter timely made the three 5

TPP payments and continued to make the TPP payments after

November 2009.

In December 2009, Plaintiffs contacted Defendants and were

told they were “still under review” and must continue making

payments. Plaintiffs then received a letter dated December 12,

2009, from BoA requesting their tax returns and the most recent

profit and loss statement. Plaintiffs allege the tax returns and

similar financial information had previously been submitted to

Defendants prior to starting the TPP.

///

///

///

///

///

 The Court did not erroneously omit the month of September. 5

According to the Complaint, the scheduled TPP payments were not

consecutive. It is unclear why this was the case.

4

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 4 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

In early January 2010, Plaintiffs received a letter from BoA

requesting tax returns, documentation stating Plaintiffs were not

subject to homeowners’ association dues, and documentation

showing completion of credit counseling. Again, Plaintiffs claim

these documents were already in BoA’s custody, but they still

produced the documents

During the latter part of January 2010, Plaintiffs received

a letter from BoA claiming Plaintiffs had not made all necessary

TPP payments. Plaintiffs thereafter requested and received a

copy of their loan history from Defendants, which indicated that

Plaintiffs made every payment since entering the TPP trial

period. 

The following month, Plaintiffs received another letter from

BoA requesting their tax returns. In lieu of submitting their

tax returns for a third time, Plaintiffs called to inquire as to

the status of the loan modification, and the purpose of the

document request, but did not receive a conclusive answer.

Between February and June 2010, Plaintiffs continued to make

their TPP payments and communicated with BoA on seven separate

occasions. By phone and in writing, BoA repeatedly assured

Plaintiffs that they had satisfied the HAMP requirements and had

been approved for the permanent loan modification and that the

paperwork would be sent to them in the near future. They were

instructed to continue making the TPP payments while awaiting the

loan modification paperwork. However, the promised paperwork

never arrived and, in a call in early June 2010, a BoA

representative could not explain why the paperwork had not been

sent out.

5

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 5 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Then, on June 25, 2010, Plaintiffs received a letter from

BoA informing them that they had not qualified for a HAMP

modification due to a negative NPV result. Just four days 6

later, on June 29, Plaintiffs contacted BoA by telephone. 

Contradicting the letter that Plaintiffs had just received, the

BoA representative “confirmed” Plaintiffs’ loan modification had

been approved in February of 2009.

Plaintiffs never received the final loan modification

documents. Instead, BoA sent Plaintiffs’ file to collection.7

In all, Plaintiffs allege that they made the three initial TPP

payments, as well as eight additional timely TPP payments. 

Subsequently, Plaintiffs began receiving harassing collection

calls and letters. 

As a result of these events, Plaintiffs claim to have

suffered increased loan interest amounts, an extended loan payoff

period, a higher principle balance, damage to their credit, and

have been deterred from seeking other remedies to address their

deed of trust default. 

///

///

///

///

///

/// 

 Supra, note 5. 6

 It is unclear why Plaintiffs were considered delinquent 7

when they claim to have made at least eleven TPP payments. 

During the collection process, a BoA collection representative

informed Plaintiffs that they were eleven payments past due. 

6

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 6 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

STANDARD

A. Motion to Dismiss

On a motion to dismiss for failure to state a claim under

Rule 12(b)(6), all allegations of material fact must be accepted

as true and construed in the light most favorable to the

nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336,

337-38 (9th Cir. 1996). Rule 8(a)(2) requires only “a short and

plain statement of the claim showing that the pleader is entitled

to relief” in order to “give the defendant fair notice of what

the...claim is and the grounds upon which it rests.” Bell Atl.

Corp. v. Twombly, 127 S. Ct. 1955, 1964 (2007) (internal

citations and quotations omitted). Though “a complaint attacked

by a Rule 12(b)(6) motion to dismiss does not need detailed

factual allegations, a plaintiff’s obligation to provide the

‘grounds’ of his ‘entitlement to relief’ requires more than

labels and conclusions, and a formulaic recitation of the

elements of a cause of action will not do.” Id. at 1964-65

(internal citations and quotations omitted). A plaintiff’s

factual allegations must be enough to raise a right to relief

above the speculative level. Id. at 1965 (citing 5 C. Wright &

A. Miller, Federal Practice and Procedure § 1216, pp. 235-36

(3d ed. 2004) (“The pleading must contain something

more...than...a statement of facts that merely creates a

suspicion [of] a legally cognizable right of action”)).

///

///

///

7

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 7 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Moreover, “Rule 8(a)(2)...requires a ‘showing,’ rather than

a blanket assertion of entitlement to relief. Without some

factual allegation in the complaint, it is hard to see how a

claimant could satisfy the requirements of providing not only

‘fair notice’ of the nature of the claim, but also ‘grounds’ on

which the claim rests.” Twombly, at 1965, n.3 (internal

citations omitted). A pleading must contain “only enough facts

to state a claim to relief that is plausible on its face.” Id.

at 1960. If the “plaintiffs...have not nudged their claims

across the line from conceivable to plausible, their complaint

must be dismissed.” Id. 

A court granting a motion to dismiss a complaint must then

decide whether to grant leave to amend. Rule 15(a) empowers the

court to freely grant leave to amend when there is no “undue

delay, bad faith[,] dilatory motive on the part of the

movant,...undue prejudice to the opposing party by virtue

of...the amendment, [or] futility of the amendment....” Foman v.

Davis, 371 U.S. 178, 182 (1962). Leave to amend is generally

denied when it is clear the deficiencies of the complaint cannot

be cured by amendment. DeSoto v. Yellow Freight Sys., Inc.,

957 F.2d 655, 658 (9th Cir. 1992); Balistieri v. Pacifica Police

Dept., 901 F.2d 696, 699 (9th Cir. 1990) (“A complaint should not

be dismissed under Rule 12(b)(6) unless it appears beyond doubt

that the plaintiff can prove no set of facts in support of his

claim which would entitle him to relief.”) (internal citations

omitted).

///

///

8

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 8 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

CLAIMS AND ANALYSIS

A. Breach of Written Contract

1. Parties’ Claims 

Plaintiffs allege that, by means of its communications with

them regarding the TPP agreement, BoA was contractually obligated

by the TPP agreement to provide them with a permanent loan

modification. Plaintiffs assert they performed all of their

obligations by paying the monthly TPP payments and by submitting

the requested paperwork. 

Defendants move to dismiss on the basis that the alleged

written contract falls under the statute of frauds because it was

unsigned. 

2. Standard

Under California law, a claim for breach of contract

requires that a plaintiff demonstrate: (1) the existence of the

contract; (2) plaintiff’s performance or excuse for

nonperformance of the contract; (3) defendant’s breach of the

contract; and (4) resulting damages. Armstrong Petrol. Corp. V.

Tri Valley Oil & Gas Co., 116 Cal. App. 4th 1375, 1391 n. 6

(2004). In California, the statute of frauds states that any

agreement to purchase real estate secured by a mortgage or deed

of trust, which is not reduced to writing, is invalid. 

///

///

///

9

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 9 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Cal. Civ. Code § 1624(a)(6); Secrest v. Security National

Mortgage Loan Trust 2002-2, 167 Cal. App. 4th 544, 552 (2008)

(“An agreement for the sale of real property or an interest in

real property comes within the statute of frauds”). “A mortgage

can be created, renewed, or extended, only by writing, executed

with the formalities required in the case of a grant of real

property.” Cal. Civ. Code § 2922. An agreement to modify a

contract subject to the statute of frauds is also subject to the

statute of frauds. Secrest, at 553. 

3. Analysis

Plaintiffs’ breach of written contract claim fails because

the alleged contract falls under the doctrine of statute of

frauds, and its requirements had not been met. Here, the alleged

contract is the TPP agreement. Both parties agree the TPP is an

agreement that modifies, at least temporarily, the original

mortgage agreement. However, Defendants contend that they never

executed the TPP agreement, and therefore the contract is

unenforceable under the statute of frauds.

Plaintiffs argue that Doughtry v. California Kettleman Oil

Royalties, Inc. prevents Defendants from raising the affirmative

defense of statute of frauds where they fully performed their end

of the disputed contract. 9 Cal. 2d 58, 81 (1937) (statute of

frauds barred where one party fully performs). However, for this

rule to apply, a sufficient change of position has to occur “so

that the application of the statutory bar would result in an

unjust and unconscionable loss, amounting in effect to fraud.” 

10

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 10 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Anderson v. Stansbury, 38 Cal. 2d 707 (1952); see also Secrest,

at 556 (“The principle that full performance takes a contract out

of the statute of frauds has been limited to the situation where

performance consisted of conveying property, rendering personal

services, or doing something other than the payment of money.”).

Plaintiffs allege that as a result of the breach they have

suffered increased interest amounts, a longer loan payoff time, a

higher principle balance, damage to their credit, and deterrence

from seeking other remedies to address their mortgage default. 

As the Secrest court held, to remove a contract from the purview

of statute of frauds the performance must be more than the

payment of money. Here, Plaintiffs suggest that the performance

was only the monthly TPP payments and the production of financial

documents. The Court does not find this performance to be of the

severity causing Plaintiffs a sufficient change in position to

bar the statute of frauds. 

Accordingly, because the statute of frauds applies, and no

claimed exception to the statute have been properly alleged or

pled, Plaintiffs’ breach of written contract claim is dismissed.

B. Breach of Oral Contract

Plaintiffs also allege Defendants breached an oral contract

for the TPP loan agreement. Plaintiffs allege that they entered

into a binding oral agreement with BoA by phone in July 2009. 

Plaintiffs claim the oral contract is enforceable because they

fully performed in accordance with the express terms of the

agreement, therefore barring the statute of frauds. 

11

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 11 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

However, this claim also fails because the statute of frauds

applies. Plaintiffs have not sufficiently pled facts

demonstrating that any exception to the writing requirement of

the statute of frauds applies. 

C. Breach of Good Faith And Fair Dealing

Plaintiffs claim that Defendants’ actions breached

California’s covenant of good faith and fair dealing. Defendants

move to dismiss on the basis that the covenant only applies under

limited circumstances, not present here.

The implied covenant of good faith and fair dealing rests

upon the existence of some specific contractual obligation. 

Foley v. Interactive Data Corp., 7 Cal. 3d 654, 683-84 (1988). 

The covenant of good faith is read into contracts in order to

protect the express covenants or promises of the contract, not to

protect some general public policy interest not directly tied to

the contract’s purpose. Id. at 690. “In essence, the covenant

is implied as a supplement to the express contractual covenants,

to prevent a contracting party from engaging in conduct which

frustrates the other party’s rights to the benefits of the

contract.” Love v. Fire Ins. Exchange, 221 Cal. App. 3d 1136,

1153 (1998). 

Under California law, recovery for breach of the covenant

“is available only in limited circumstances, generally involving

a special relationship between the contracting parties.” Bionghi

v. Metro. Water Dist., 70 Cal. App. 4th 1358, 1370 (1999). 

///

12

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 12 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

California courts have rejected the argument that the doctrine,

which traditionally extends only to unique fiduciary-like

relationships, should encompass normal commercial banking

transactions. Mitsui Mfrs. Bank v. Superior Court, 212 Cal. App.

3d 726, 729 (1989). 

This Court previously granted Defendant’s Motion to Dismiss

Plaintiffs’ breach of good faith claim because no underlying

contract was established. Again, because Plaintiffs have failed

to establish the existence of an enforceable contract, this claim

is dismissed. 

D. Promissory Estoppel

Plaintiffs contend that Defendants must be estopped from

failing to honor the promises made to Plaintiffs regarding the

permanent loan modification. Defendants move to dismiss on the

basis that no promise had been made to Plaintiffs regarding a

permanent loan modification.

Promissory estoppel makes a “promise binding under certain

circumstances, without consideration in the usual sense of

something bargained for and something given in exchange.” Garcia

v. World-Sav., FSB, 183 Cal. App. 4th 1037, 1040-41 (2010)

(citing Youngman v. Nev. Irrigation Dist., 70 Cal. 2d 240, 249

(1969)). If the language or conduct of an individual leads

another to act as he or she would not have acted, then he or she

should not be denied the “expectations upon which he acted.” Id. 

///

///

13

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 13 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

To establish a promissory estoppel claim, three elements

must be met: (1) a clear and unambiguous promise in its terms;

(2) reliance that is reasonable and foreseeable; and (3) an

injury that results from reliance. Laks v. Coast Fed. Sav. &

Loan Assn., 60 Cal. App. 3d 885, 890 (1923).

Plaintiffs have pled sufficient factual allegations to

support their promissory estoppel claim. They allege Defendants

promised, both orally and in writing, to provide Plaintiffs with

a loan modification upon being approved under the HAMP

requirements and upon them making timely monthly TPP payments. 

Plaintiffs allege they were repeatedly assured by BoA that they

had satisfied the HAMP requirements, were current with their TPP

payments, and would therefore be receiving the loan modification

agreement to be signed. Plaintiffs’ reliance on those promises

were reasonably foreseeable as they acted in accordance with the

express terms of the written TPP, as well as the oral promises. 

Plaintiffs have also sufficiently alleged injury as a result of

the promise made by BoA. Defendants’ Motion to Dismiss

Plaintiffs’ claim for promissory estoppel is denied. 

E. The Rosenthal Fair Debt Collection Practices Act

Plaintiffs allege BoA violated California’s Rosenthal Fair

Debt Collection Practices Act (“RFDCPA”) by making repeated calls

and sending multiple letters seeking to collect on the defaulted

deed of trust. 

///

///

14

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 14 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Defendants move to dismiss Plaintiffs’ RFDCPA claim under the

theory that BoA is not a “debt collector” as defined by RFDCPA,

and that Plaintiffs fail to properly plead BoA used “false,

deceptive, or unfair means[,]” as required by RFDCPA (Reply in

Support of MTD at 9.) 

Under RFDCPA, a debt collector is prohibited from collecting

or attempting to collect from a debtor in a threatening or

harassing manner. See Cal. Civ. Code § 1788 et seq. The RFDCPA

defines “debt collector” as “any person who in the ordinary

course of business, regularly, on behalf of himself or herself or

others, engages in debt collection.” Id. § 1788.2(c). 

Several district courts within the Ninth Circuit have found

bank actions to recover on deed of trust defaults not to be “a

debt” within the meaning of the RFDCPA. See, e.g., Grill v. BAC

Home Loans Serv. LP, No. 10-CV-03057-FCD/GGH, 2011 WL 127891 at

19 (E.D. Cal. Jan. 14, 2011) (citing six California district

court cases for this proposition) (internal citations omitted). 

This Court agrees. Because this is a deed of trust default, BoA

is not collecting a “debt” within the meaning of RFDCPA.

///

///

///

///

///

///

///

///

///

15

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 15 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Furthermore, under the RFDCPA, a mortgage servicing company

or any assignee of the debt is not considered a debt collector. 

Lal v. American Home Servicing, Inc, 680 F. Supp. 2d 1218, 1224;

see also Angulo v. Countrywide Home Loans, Inc., No. 1:09-CV-877-

AWI-SMS, 2009 WL 3427179, at *5 (E.D. Cal. October 26, 2009)

(citations omitted); Morgera v. Countryside Home Loans, Inc.,

No. 2:09-CV-01476-MCE-GGH, 2010 WL 160348, at *3 (E.D. Cal

Jan. 11, 2010) (“California courts have declined to regard a

residential mortgage loan as a ‘debt’ under the RFDCPA.”). BoA

is therefore not a “debt collector” under the RFDCPA. 

 Accordingly, because the alleged foreclosure is not

considered a “debt” under RFDCPA, and BoA is not deemed a “debt

collector” within the meaning of the statute, Defendants cannot

be held liable for the alleged claims.

Because no set of facts presented by Plaintiffs will alter

the fact that a deed of trust is not a “debt,” and BoA is not a

“debt collector” for recovering funds from a deed of trust

default, this cause of action is dismissed without leave to

amend. 

F. The California Unfair Competition Law

Plaintiffs claim Defendants engaged in unlawful, unfair, and

fraudulent acts violating California’s Unfair Competition Law

(“UCL”). Defendants move to dismiss on the basis that plaintiffs

do not plead sufficient facts to support a UCL claim. 

///

///

16

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 16 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The UCL defines unfair competition as “any unlawful, unfair

or fraudulent business act or practice.” Cal. Bus. & Prof. Code

§ 17200. It allows for plaintiffs to state claims for acts, or

practices which are: unlawful, unfair, or fraudulent. Cal-Tech

Commc’ns., Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180

(1999). 

1. Unlawful Acts or Practices

Any business practice which violates federal, state, or

local law is an unlawful business practice under the terms of

section 17200. Durrell v. Sharp Healthcare, 108 Cal. App. 4th

1350, 1361 (2010). In this Court’s previous Order on this

matter, Plaintiffs’ unlawful business practice claims were

dismissed because Plaintiffs failed to allege a violation of

federal, state or local law. Again, because no law has been

sufficiently pled as being violated, Plaintiffs’ claim fails

under this prong of the UCL. 

2. Unfair Acts or Practices

To substantiate an unfair acts or practices claim, a

Plaintiff must “tether its allegation to a constitutional or

statutory provision or regulation carrying out such a statutory

policy,” Cal-Tech Comms., at 180 (1999); Lozano v. AT&T Wireless

Servs., 504 F.3d 718 (9th Cir. 2007), or show that the harm

caused outweighs the utility of the Defendants’ practices.

Lozano, at 735.

17

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 17 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Plaintiffs have neither “tethered” their claim to a

constitutional or statutory provision or regulation carrying out

a statutory policy, nor have they shown how any alleged harm

outweighs the utility of the Defendants’ practice. 

3. Fraudulent Acts or Practices

Allegations of fraud implicate Rule 9(b)’s heightened

pleading standard. Rule 9(b) requires Plaintiffs alleging fraud

to “state with particularity the circumstances constituting fraud

or mistake.” In explaining Rule 9(b), the Ninth Circuit has said

that “to avoid dismissal for inadequacy under Rule 9(b), [the]

complaint would need to state the time, place, and specific

content of the false representations as well as the identities of

the parties to the misrepresentation.” Edwards v. Marin Park,

Inc., 356 F.3d 1058, 1066 (9th Cir. 2004) (citations omitted).

Although plaintiffs allege facts establishing time, place,

and identifying the parties to various statements, they fail to

provide details involving the specific false statements they

allege. For example, Plaintiffs assert the legal conclusion that

“[BoA] has made misrepresentations and omissions of material

fact,” without directing the Court to a time, statement, or

person, relevant to the misrepresentation. (SAC ¶ 147.) 

Plaintiffs also do not state what the actual misrepresentations

and omissions allegedly were. (SAC ¶ 147.) 

Accordingly, Defendants’ Motion to Dismiss Plaintiffs’ UCL

claim is granted. 

///

18

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 18 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

G. Truth In Lending Act and Regulation Z

Plaintiffs allege BoA violated the Truth In Lending Act by

“failing to deliver to Plaintiffs two copies of the notice of

right to cancel that clearly and conspicuously disclosed the date

of the [initial deed of trust] transaction and the date the

rescission period expired.” (SAC ¶ 156.) Plaintiffs go on to

allege that “the notices of right to cancel that Plaintiffs

received were materially defective in that they did not indicate

the final date to rescind the loan.” (Id.) Plaintiffs contend,

that as a result of receiving defective forms, Plaintiffs have

the right to rescind their initial deed of trust agreement. 

Defendants move to dismiss on the basis that Plaintiffs did

receive a proper and conspicuously disclosed Notice of Right to

Cancel (“NRC”). 

TILA mandates that borrowers be given three business days to

rescind, without penalty, a consumer loan that uses their

principle dwelling as security. 15 U.S.C. § 1635(a). If the

lender does not comply with TILA’s disclosure requirements, the

rescission period is extended to three years. 15 U.S.C.

§ 1635(f). The disclosure requirements at issue here are:

(1) that creditors must provide each borrower two NRCs within

three days of the transactions’ execution, 12 C.F.R. 226.15(b);

and (2) that the NRC identify when the cancellation period

expires. Id. 

///

///

///

19

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 19 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

It is undisputed that, on December 19, 2007, Plaintiffs

received and signed an NRC identifying both the date of the

transaction and the period of rescission. Defendants have

attached a copy of the NRC to their Motion to Dismiss. 

Plaintiffs do not dispute its validity. 

The NRC states, “You have a legal right under federal law to

cancel this transaction, without cost, within THREE BUSINESS

DAYS...” of whichever occurs last: (1) the date of the

transaction (December 19, 2007); (2) the date Plaintiffs received

the TILA; or (3) the date Plaintiffs received the NRC. (Defs.’

MTD Exh. 2(D).) Therefore, contrary to their claims, Plaintiffs

did receive proper notification of a notice to cancel and the

period of rescission and there is no claim or evidence that they

exercised their right to cancel.

Additionally, TILA furnishes a roster of transactions to

which the disclosure requirements do not apply, which include: 

(1) a residential mortgage transaction...; [and]

(2) a transaction which constitutes a refinancing or 

consolidation (with no new advances) of the principle 

balance then due and any accrued and unpaid finance

charges of an existing extension of credit by the same

creditor secured by an interest in the same property[.]

15 U.S.C. § 1635(e)(1)-(2).

A “residential mortgage transaction,” for purposes of the

first exemption is defined as, “a transaction in which a

mortgage, deed of trust, purchase money security interest arising

under an installment sales contract, or equivalent consensual

security interest is created or retained against the consumer's

dwelling to finance the acquisition or initial construction of

such dwelling.” 15 U.S.C. § 1602. 

20

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 20 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Plaintiff argues that the transaction at issue was neither made

to acquire or to construct Plaintiffs’ residence, barring this

exemption. However, Plaintiffs have failed to assert the true

nature of the loan at issue, forcing the Court to guess its

purpose. This Court will not take part in guessing games and

does not accept Plaintiffs’ conclusory allegations.

As to the refinancing exemption, Plaintiffs again claim the

transaction at hand falls outside of the exemption. However, as

explained above, this Court cannot ascertain the nature of the

loan. Because the Court cannot decipher from the pleading what

the nature of the loan was, and because Plaintiffs have not

sufficiently alleged that the NRC must apply or that the TILA

exemptions do not apply, Plaintiffs’ claim for violation of TILA

is dismissed.

CONCLUSION

As a matter of law, and for the reasons set forth above, 

Defendants’ Motion to Dismiss is GRANTED in part and DENIED in

part.

Defendants’ Motion to Dismiss is GRANTED without leave to

amend with respect to Plaintiffs’ Rosenthal Fair Debt Collection

Practice Act cause of action.

///

///

///

///

///

21

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 21 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Defendants’ Motion to Dismiss is also GRANTED with respect

to Plaintiffs’ cause of action for breach of written and oral

contract; breach of good faith and fair dealing; violations of

the Rosenthal Fair Debt Collection Practices Act; violations of

California’s Unfair Competition Law; and Violations of Truth-InLending Act and Regulation Z. Plaintiffs are given final leave

to amend for these causes of action. Any such amendment must be

filed within twenty (20) days of the date this Order is

electronically filed. No further amendments will be permitted

thereafter.

Defendants’ Motion to Dismiss is DENIED as to Plaintiffs’

promissory estoppel cause of action.

IT IS SO ORDERED. 

Dated: December 5, 2011

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

22

Case 2:10-cv-03309-MCE-EFB Document 28 Filed 12/06/11 Page 22 of 22