Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_15-cv-01403/USCOURTS-casd-3_15-cv-01403-1/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1331 Fed. Question

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

KATHY WESTFALL,

Plaintiff,

v.

MORTGAGE ELECTRONIC 

REGISTRATION SYSTEMS, INC. et al.,

Defendants.

Case No.: 3:15-cv-01403-L-NLS

ORDER GRANTING IN PART AND 

DENYING IN PART DEFENDANTS' 

MOTION TO DISMISS

Pending before the Court in this mortgage foreclosure action is a motion to dismiss the 

first amended complaint ("FAC") pursuant to Federal Rule of Civil Procedure 12(b)(6), 

filed by Defendant Bank of America, N.A. (“Bank of America”). Defendants Nationstar

Mortgage Servicing (“Nationstar”), Mortgage Electronic Registration Systems, Inc. 

(“MERS”) and Deutsche Bank National Trust Company (“Deutsche Bank,” collectively 

"Defendants") filed a notice of joinder in Bank of America’s motion. Plaintiff filed an 

opposition and Defendant replied. For the reasons which follow, the motion is granted 

with respect to Plaintiff's seventh cause of action for unjust enrichment and the third 

cause of action for wrongful foreclosure, to the extent Plaintiff seeks damages. The 

motion is denied in all other respects. Plaintiff's request for leave to amend is denied.

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I. Background

Plaintiff owns a secondary residence in Carlsbad, California ("Property"). (FAC at 

2.) In June 2006, she refinanced it by signing a deed of trust securing a promissory note 

for $795,000 from Aegis Wholesale Corporation (“Aegis”), the lender ("Deed of Trust"

and "Note," respectively). (Id. Ex. C.) The Deed of Trust listed Commonwealth Land 

Title (“Commonwealth”) as the trustee, and MERS as the beneficiary, solely as nominee 

for the lender Aegis. (Id.) Plaintiff alleges that unbeknownst to her, Aegis was not the 

lender but a loan broker who immediately sold the loan to Countrywide Bank, FSB 

("Countrywide") in exchange for a yield spread premium. (FAC at 8-9.) 

On December 19, 2012, an Assignment of Deed of Trust was recorded, transferring 

the Deed of Trust from Aegis to Deutsche Bank "as Trustee for Harborview Mortgage 

Loan Trust ['Trust'] Mortgage Loan Passthrough Certificates, Series 2006-9." (FAC at 13 

& Ex. H.) Plaintiff claims that the assignment was invalid for many reasons. (See FAC 

at 13 & 16-19.) For example, Plaintiff alleges that it was not properly signed by a MERS 

representative and that the Deed of Trust was not endorsed to Greenwich Capital 

Assurance, Inc., the Depositor of the Trust, as required by the Pooling and Servicing 

Agreement, but to Deutsche Bank, the Trustee of the Trust. 

Another Assignment of Deed of Trust was recorded on September 16, 2014, 

whereby Deutsche Bank transferred its interest in the Deed of Trust to Nationstar. (FAC 

at 14 & Ex. J.) Plaintiff alleges that the assignment is void because it is signed by 

Nationstar as attorney-in-fact for Deutsche Bank rather than by Deutsche Bank itself.

On the same day, a Substitution of Trustee was recorded whereby Nationstar 

substituted Veriprise Processing Solutions LLC ("Veriprise") as the trustee in place of 

Commonwealth. (FAC Ex. K.) Plaintiff claims that it is void, because it is signed by 

Nationstar, which has no interest in the Deed of Trust because the assignment to 

Nationstar was void. (FAC at 14.) 

Finally, a Notice of Default and Election to Sell Under Deed of Trust ("NOD") was 

recorded on the same day. (FAC at 13 & Ex. I.) It stated that Plaintiff had to pay 

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$185,160.16 to reinstate her loan. Plaintiff was instructed to contact Nationstar directly 

or through Veriprise to determine the payoff amount. Plaintiff claims the NOD is invalid 

because it is allegedly in conflict with the allonge to the Note. (FAC at 14-15; see also 

Exs. C at 25 (Note) & L (allonge).) The allonge was initially filled out to pay to the order 

of Aegis, the lender. Subsequently, it was endorsed by Aegis to pay to the order of 

Countrywide, then by Countrywide to Countrywide Home Loans, Inc., and finally by 

Countrywide Home Loans, Inc. in blank. (FAC Ex. L.) Although the Deed of Trust was 

allegedly assigned to Deutsche Bank (see FAC Ex. H), the allonge does not show that the 

note was assigned as well (cf. id. Ex. L). 

Plaintiff argues that the alleged defects in the assignment of the Deed of Trust to 

Deutsche Bank and lack of endorsement of the promissory note to Deutsche Bank caused 

a break in the chain of title which ultimately rendered the NOD invalid. (See FAC at 19-

20.) Plaintiff reasons that California Civil Code § 2924(a)(1) provides that only the 

trustee, mortgagee or beneficiary under a deed of trust, or any of their authorized agents 

may file an NOD. According to Plaintiff, the alleged defects in the assignments of the 

Deed of Trust and the Note, there is no party who could validly foreclose, and all the 

foreclosure documents are void and fraudulent. (FAC at 20.) 

According to the record before the Court, the Property has not yet been foreclosed. 

Plaintiff does not dispute that she is in default.

Faced with impending foreclosure, Plaintiff filed a wrongful foreclosure complaint 

in this Court. The Court has federal question jurisdiction over the federal claims alleged 

in the complaint and supplemental jurisdiction over the state law claims. See 28 U.S.C. § 

1331 & 1367.1

Bank of America filed a motion to dismiss the initial complaint, which was granted 

in part and denied in part. (See doc. no. 18 ("Order").) Plaintiff was granted leave to 

 

1 Although Plaintiff alleges that the Court also has diversity jurisdiction under 28 

U.S.C. § 1332, she has not alleged sufficient information regarding citizenship of each 

party to make that determination. (See FAC at 2-3.)

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amend. (Id.) In her first amended complaint she alleges claims for (1) violations of the 

Real Estate Settlement Procedures Act, 12 U.S.C. §2601 et seq. (“RESPA”), (2) 

violations of the Truth in Lending Act, 15 U.S.C. §1601 et seq. (“TILA”), (3) wrongful 

foreclosure, (4) quiet title, (5) cancellation of instruments, (6) violation of California 

Unfair Competition Law, Cal. Bus. & Profs. Code §17200, et. seq. (“UCL”), and (7) 

unjust enrichment. She requests an order enjoining foreclosure of the Property and 

declaring the she owns the Property free and clear of Defendants' claims or liens, 

disgorgement of Defendants' alleged unjust enrichment, return of all Plaintiff's payments 

with interest, and damages. Pending before the Court is Bank of America's motion to 

dismiss the first amended complaint for failure to state a claim. All remaining 

Defendants have joined in the motion. 

II. Discussion

A motion under Rule 12(b)(6) tests the sufficiency of the complaint. Navarro v. 

Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted where the complaint

lacks a cognizable legal theory. Shroyer v. New Cingular Wireless Serv., Inc., 622 F.3d

1035, 1041(9th Cir. 2010) (internal quotation marks and citation omitted). Alternatively, 

a complaint may be dismissed where it presents a cognizable legal theory, yet fails to 

plead essential facts under that theory. Robertson v. Dean Witter Reynolds, Inc., 749 

F.2d 530, 534 (9th Cir. 1984). 

In reviewing a Rule 12(b)(6) motion, the Court must assume the truth of all factual 

allegations and construe them most favorably to the nonmoving party. Huynh v. Chase 

Manhattan Bank, 465 F.3d 992, 997, 999 n.3 (9th Cir. 2006). However, legal conclusions 

need not be taken as true merely because they are couched as factual allegations. Bell 

Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007); Papasan v. Allain, 478 U.S. 265, 

286 (1986). Similarly, "conclusory allegations of law and unwarranted inferences are not 

sufficient to defeat a motion to dismiss." Pareto v. Fed. Deposit Ins. Corp., 139 F.3d 696, 

699 (9th Cir. 1998).

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A. RESPA

In her first cause of action Plaintiff alleges three RESPA violations: 12 U.S.C. § 

2601,

2 § 2605 regarding mortgage servicing, and § 2607 prohibiting kickbacks and 

unearned fees. (FAC at 22-23.) Defendants challenge only the alleged violations of §

2607.

Initially, Defendants argue that the claim is time barred. RESPA claims for § 2607 

violations are subject to a one year statute of limitations from the date of the occurrence

of the violation. 12 U.S.C. § 2614. The claim, which relates to the initial purchase of the 

Property in 2006, was previously dismissed as time barred on the face of the complaint. 

(See Order at 4.) Plaintiff was granted leave to amend, to allege facts in support of her 

equitable tolling argument. 

RESPA's statute of limitations is subject to equitable tolling, Merritt v. 

Countrywide Fin. Corp., 759 F.3d 1023 (9th Cir. 2014), in "appropriate circumstances," 

King v. California, 784 F.2d 910, 915 (9th Cir. 1986). Such circumstances are present 

until the plaintiff can gather the necessary information, if a reasonable plaintiff would not 

have earlier known of the existence of a possible claim; or when the plaintiff is prevented 

from asserting a claim by wrongful conduct on the part of the defendant, including 

fraudulent conduct, so long as the plaintiff is not on inquiry notice; and when 

extraordinary circumstances beyond the plaintiff's control make it impossible to file the

claim on time. Huynh, 465 F.3d at 1004. In the mortgage lending context, the statute of 

limitations is tolled "until the borrower discovers or had reasonable opportunity to 

discover the fraud or nondisclosures that form the basis." King, 784 F.2d at 916. 

However, the applicability of equitable tolling often depends on matters outside the 

pleadings. Huynh, 465 F.3d at 1003. It is therefore "rarely appropriate to grant a Rule 

12(b)(6) motion to dismiss (where review is limited to the complaint) if equitable tolling 

is at issue." Id. at 1003-04; see also King, 784 F.2d at 915 ("fraudulent concealment and 

 

2 Plaintiff cites to § 2601 (Congressional Findings and Purpose). It appears that she 

may have intended to reference a different provision. 

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equitable tolling involve factual determinations"); Merritt, 759 F.3d at 1040 (on remand, 

the district may consider evidence). 

Plaintiff alleges she had no reason to investigate until she received the NOD, 

which was recorded in September 2014. This is apparent from the record. Defendants 

have presented no reason to infer to the contrary. Plaintiff filed this action less than a 

year after the NOD, on June 25, 2015. This is sufficient at this stage of proceedings to 

deny dismissal based on statute of limitations. This finding is without prejudice to 

Defendants raising this issue again in an appropriate motion or at trial.

Defendants next argue that the claim should be dismissed because the allegations 

of fraudulent conduct related to the alleged kickbacks do not meet Rule 9(b) specificity 

requirements. Claims “grounded in fraud ... must satisfy the particularity requirement of 

Rule 9(b).” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103-04 (9th Cir. 2003) 

(internal quotation marks and citation omitted); see also Kearns v. Ford Motor Co., 567 

F.3d 1120, 1124-25 (9th Cir. 2009) (Rule 9(b) applies to the extent a claim is based on a 

misrepresentation). To meet the hightened pleading standard for averments of fraud, a 

plaintiff must allege the "who, what, when, where and how of the misconduct charged." 

Vess, 317 F.3d at 1106 (internal quotation marks and citation omitted). Here, Plaintiff 

has sufficiently identified the transaction and the parties to it to meet this requirement and 

enable Defendants to formulate a response. (FAC at 22-23.) 

Finally, Defendants contend that Plaintiff failed to allege pecuniary loss. The 

Court disagrees. Plaintiff expressly alleged that she was charged "excessive, uneraned 

and duplicative fees." (FAC at 22; see also id. at 23 (illegal fees).) To the extent 

Defendants are seeking dismissal of the RESPA claim, their motion is denied.

B. TILA

Plaintiff alleges that Bank of America and Aegis failed to make the requisite 

disclosures and to properly underwrite the loan. (FAC at 25-26.) The statute provides 

for a three-day unconditional right to rescind, or a three-year conditional right to rescind, 

even if the required disclosures were not made at all. 15 U.S.C. § 1635(f); Jesinoski v. 

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Countrywide Home Loans, Inc., __ U.S. __; 135 S. Ct. 790 (2015). Plaintiff's loan was 

consummated in June 2006; accordingly, a rescission claim is time barred on the face of 

the complaint. Equitable tolling does not apply to TILA's three-year statute of 

limitations. See Beach v. Ocwen Fed. Bank, 523 U.S. 410, 414-19 (1998). 

Alternatively, TILA provides for damages. 15 U.S.C. § 1640. A claim for 

damages is subject to a one-year statute of limitations from the date of the occurrence.

Id. § 1640(e). Equitable tolling applies to TILA damages claims in "appropriate 

circumstances." King, 784 F.2d at 914-15. 

Because the loan closed and all related disclosures were made in June 2006, the 

claim for damages is time barred on the face of the complaint. As with the RESPA 

claim, Defendants had previously moved to dismiss it as time barred. Their motion was 

granted with leave to amend. (See Order at 5-6.) In her amended complaint, Plaintiff 

makes the same allegations as in support of tolling the statute with respect to the RESPA 

claim. (See FAC at 26.) She claims she did not discover the violations sooner because 

she had no reason to question the transaction before the NOD. (Id. at 26-27.) 

Defendants' statute of limitations argument is rejected for the same reasons as it was 

rejected in the RESPA context. 

Alternatively, Bank of America contends the TILA claim should be dismissed 

because it was not the creditor on Plaintiff's loan. TILA liability applies to the creditor 

on the original loan and its assignees. 15 U.S.C. §§ 1640(a), 1641. Bank of America was 

not the creditor or assignee. (See FAC at 21.) Plaintiff counters that Bank of America 

was the creditor in its capacity as the sole owner of Countrywide, and that Countrywide 

was the actual lender because unbeknownst to her, Aegis allegedly was not the lender but 

a loan broker who immediately sold the loan to Countrywide in exchange for a yield 

spread premium. (FAC at 8-9.) Defendants do not respond to this successor liability 

argument in their reply. Accordingly, Defendants' motion is denied to the extent they 

seek dismissal of the TILA claim.

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C. Wrongful Foreclosure

In her wrongful foreclosure claim, Plaintiff contends that Defendants knowingly 

commenced foreclosure proceedings based on fraudulent documents. (FAC at 27-28.) 

As no foreclosure has yet occurred, Plaintiff has no cause of action for damages, but may 

have a claim for injunctive relief.

California non-judicial foreclosure statutory scheme does not provide for a 

preemptive suit for damages for wrongful initiation of foreclosure. Robinson v. 

Countrywide Home Loans, Inc., 199 Cal. App. 4th 42, 46 (2011). Plaintiff relies on a 

footnote in Robinson that the borrower who believes that the foreclosing entity lacks 

standing can seek to enjoin the trustee's sale or to set the sale aside. Id. at 46 n.5. The 

foreclosure has not yet occurred. Plaintiff therefore cannot request to set it aside. 

However, to the extent she is seeking to enjoin the sale from proceeding, she potentially 

can state a claim. (See FAC at 44; but see id. at 28 (damages).) 

In the reply brief, Bank of America claims that is not involved in the foreclosure 

process, and that the claim should therefore be dismissed against it, if not against other 

Defendants. As this argument was made for the first time in the reply, it will not be 

considered at this time. Ordinarily, the Court does not entertain substantive arguments 

made for the first time in the reply, as it deprives the opposing party of the opportunity to 

respond. See Zamani v. Carnes, 491 F.3d 990, 997 (9th Cir. 2007). 

Reading the complaint with the requisite liberality, Plaintiff states a claim for

injunctive relief based on wrongful foreclosure. Plaintiff, however, does not state a claim 

for damages.

D. Cancellation of Instruments

Plaintiff requests the cancellation of the Note, Deed of Trust, NOD and Notice of 

Trustee's Sale. Defendants argue the claim should be dismissed with respect to the Note 

and Deed of Trust because it is time barred, the allegations do not meet the hightened 

pleading requirement of Rule 9(b), and because she has not alleged ability to tender. For 

the reasons which follow, the motion is denied.

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Defendants contend that cancellation of the Note and Deed of Trust is time barred. 

In the previous Order, the claim was dismissed with leave to amend to allow Plaintiff to 

allege delayed discovery of Defendants' alleged fraud. (Order at 8.) As was the case 

with the tolling of RESPA's statute of limitations, in the amended complaint Plaintiff 

alleges she was not able to discover her cancellation claim sooner because she had no 

reason to question the transaction until the NOD was recorded. (FAC at 31.) As the 

basis for cancellation, Plaintiff alleges that at the time of the sale Defendants concealed 

from her that Aegis was not truly the lender, but a loan broker who would transfer the 

loan to a financial institution upon closing in exchange for unlawful and excessive fees. 

(Id. at 31 & 8-9.) Plaintiffs' discovery allegations sufficiently identify the time, parties 

involved and the transaction to meet the hightened pleading requirement and enable 

Defendants to respond. Defendants' renewed tender argument is rejected for the reasons 

stated in the Order. (Order at 6-7.) Accordingly, to the extent Defendants move to 

dismiss the cancellation claim, their motion is denied.

E. Unjust Enrichment

Plaintiff alleges that as a result of various defects and improprieties in the 

assignment of the Deed of Trust, including that the assignment of the Note did not follow 

the same path as the Deed of Trust, and that the assignment to Deutsche Bank did not 

conform with the proper procedure for assignment to the mortgage passthrough trust, 

there is no party with an interest in the Note and Deed of Trust with authority to 

foreclose. (FAC at 35-44.) She advances this position although she does not deny that 

she received the loan proceeds and is in default. She claims that Defendants are unjustly 

enriched by collecting mortgage payments and encumbering the title to her Property. (Id. 

at 35.) 

Plaintiff's theory of unjust enrichment by collecting her mortgage payments is 

rejected for the same reasons stated in the Order. (Order at 11.) The alleged improper 

securitization of her loan is not a sufficient basis to assert an unjust enrichment claims 

against Defendants. See Saterbak v. JP Morgan Chase Bank, 245 Cal. App. 4th 808 

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(2016). Accordingly, Plaintiff's seventh cause of action for unjust enrichment is 

dismissed. As Plaintiff has already been granted leave to amend, and it does not appear 

that she could allege any further relevant facts, her request for leave to amend is denied.

III. Conclusion

For the foregoing reasons, Defendants' motion is granted as to Plaintiff's seventh 

cause of action for unjust enrichment and as to the third cause of action for wrongful 

foreclosure, to the extent Plaintiff seeks damages. The motion is denied in all other 

respects. Plaintiff's request for leave to amend is denied.

IT IS SO ORDERED.

Dated: September 29, 2017

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