Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-02700/USCOURTS-caed-2_09-cv-02700-4/pdf.json

Nature of Suit Code: 220
Nature of Suit: Foreclosure
Cause of Action: 28:1444 Petition for Removal- Foreclosure

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UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

JOHN J. FALCOCCHIA and

RACHAEL D. FALCOCCHIA,

NO. CIV. S-09-2700 LKK/GGH

Plaintiffs,

v.

O R D E R

SAXON MORTGAGE, INC., et al.,

Defendants.

 /

This case involves plaintiffs’ mortgage. The court has

previously granted in part two motions to dismiss. See Orders

filed February 12 and May 27, 2010. After the second of these

orders, plaintiffs filed a complaint the parties refer to as the

second amended complaint (“SAC”). Defendants Saxon Mortgage, Inc.,

Saxon Mortgage Services, Ind., and Deutsche Bank Trust Company

Americas collectively move to dismiss three claims in the SAC on

the ground that these claims suffer from defects previously

determined to warrant dismissal. The court resolves the motion on

the papers and without oral argument. For the reasons stated

below, defendants’ motion is granted in part.

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 In the two prior orders referenced above, the court has 1

provided detailed articulations of the facts in this case and the

standards governing motions to dismiss under Fed. R. Civ. P.

12(b)(6). The facts alleged in the SAC are substantially similar,

except as noted below. Accordingly, there is no need to rearticulate the background or the applicable standard here.

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I. Analysis1

Defendants move for dismissal of plaintiffs’ claims under the

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

Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq.

(“RESPA”), and for breach of the implied covenant of good faith and

fair dealing.

A. TILA, Plaintiffs’ Eighth Claim

In the May 27, 2010 order, the court held that plaintiffs had

stated a claim under TILA only for damages resulting from

defendants’ failure to respond to a notice of rescission.

Plaintiffs’ claim for rescission itself, as well as plaintiffs’

claims for damages arising from other alleged misconduct, were

untimely.

In the SAC, plaintiffs seek, as remedy for the alleged TILA

violations:

injunctive relief; an order requiring

Defendants to take all actions in the

expungement of any foreclosure instruments,

including but not limited to any Notice of

Default or Notice of Trustee’s Sale, relating

to the transaction from any public record;

removal of any derogatory information reported

to any credit reporting agency or credit

reporting bureau relating to the transaction;

SAC ¶ 112, as well as:

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declaratory and injunctive relief preventing

Defendants from taking any action to collect

on the loan, and/or to foreclose upon the

property, and/or to transfer the property.

SAC ¶ 114. For the reasons previously explained, TILA does not

entitle the plaintiffs here to any of these remedies.

Plaintiffs now argue that these allegations merely seek

perpetuation of the preliminary injunction entered by the state

court prior to removal of this case. Opp’n at 9. The continuing

validity of that injunction, and the potential basis thereof, is

not at issue in the present motion.

Although the court dismisses the TILA claim insofar as it

seeks these remedies, the court declines to dismiss the remainder

of the claim. Plaintiffs are cautioned, however, that future

violation of the courts orders, including pleading of claims that

have been dismissed with prejudice, will result in dismissal of

this case as a sanction. E.D. Cal. Local Rule 110, Fed. R. Civ.

P. 41(b).

B. RESPA, Plaintiffs’ Ninth Claim

The RESPA claim, as alleged in both the prior and operative

complaints, alleges that defendants failed to respond to a

“Qualified Written Request” (“QWR”). RESPA defines a QWR as:

a written correspondence, other than notice on

a payment coupon or other payment medium

supplied by the servicer, that (i) includes,

or otherwise enables the servicer to identify,

the name and account of the borrower; and (ii)

includes a statement of the reasons for the

belief of the borrower, to the extent

applicable, that the account is in error or

provides sufficient detail to the servicer

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regarding other information sought by the

borrower.

12 U.S.C. § 2605(e)(1)(B). In the previous complaint, plaintiffs

alleged that they sent a letter that “demand[ed] to cancel the

foreclosure sale under the . . . Deed of Trust [and] to rescind the

loan for various violations under [TILA].” FAC ¶ 46. The court

rejected plaintiffs’ assertion that such a letter, without more,

would constitute a QWR under RESPA. Order filed May 27, 2010, at

17-18.

The SAC alleges that this correspondence “sought . . . the

principal balance owed, the calculated monthly payment, calculated

escrow payment, and any fees claimed to be owed to the

defendants.” SAC ¶ 46. Although defendants have requested

judicial notice of many documents, defendants have not presented

a copy of this letter. The court must conclude that the alleged

correspondence seeks information in accordance with 12 U.S.C. §

2065(e)(1)(B)(ii). Plaintiffs have therefore alleged that they

sent a QWR, curing the deficiency identified in the prior order.

C. Breach of the Implied Covenant of Good Faith and Fair

Dealing, Plaintiffs’ Third Claim

The court previously observed that “[p]laintiffs treat this

claim as a catch-all for all alleged wrongdoing by defendants.”

Order filed May 27, 2010, at 20. The court nonetheless denied

defendants’ motion to dismiss this claim, with one exception. The

court dismissed plaintiffs’ good faith claim insofar as plaintiffs

alleged a tortious breach of the implied covenant or that

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 The May 27, 2010 order granted leave to amend only as to the 2

RESPA claim. This was an error, resulting from the failure to

acknowledge, in that portion of the order, that portions of the

good faith claim were also dismissed on grounds not previously

addressed by the court. Although plaintiffs should have called

this error to the court’s attention rather than merely violating

the terms of the order and repleading the good faith claim, the

court nonetheless considers these amended allegations.

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defendants had an obligation to “pay at least as much regard to

Plaintiffs’ interests as to Defendants’ interests.” Id. at 21.

Plaintiffs have re-pled these aspects of this claim, and defendants

again move to dismiss them.2

Under California law, the obligation to pay as much heed to

the other party’s interests as to one’s own and the availability

of tort damages under a doctrine that otherwise sounds in contract

both require the existence of a “special relationship.” See, e.g.,

Kim v. Sumitomo Bank, 17 Cal. App. 4th 974, 979 (1993). Here,

plaintiffs argue that a fiduciary duty is such a relationship, that

the broker owed plaintiffs a fiduciary duty, and that defendants

further owed such a duty because of their relationship with the

brokers. Given that a fiduciary duty is itself enforceable without

reference to the doctrine of good faith, it is unclear whether a

fiduciary duty may support a claim for tortious breach of the

implied covenant. The court does not reach this issue, because

plaintiffs have not alleged facts supporting such a relationship

here. Similarly, if the court were to construe the SAC as alleging

a claim for breach of fiduciary duty, such a claim would be

dismissed.

A loan broker owes the borrower a fiduciary duty under

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As with many other cases brought by borrowers, the 3

plaintiffs here argue that defendants offered “greater commission

or bonus for placing borrowers into loan with relatively higher

yield spread premiums,” but under industry usage, the yield spread

premium is itself the commission. The court’s phrasing captures

plaintiffs’ concern.

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California law. Price v. Wells Fargo Bank, 213 Cal. App. 3d 465,

476 (1989). A lender acting within “the scope of its conventional

role as a mere lender of money,” on the other hand, ordinarily does

not even owe the borrower a duty of care sounding in negligence,

much less a fiduciary duty. Nymark v. Heart Fed. Sav. & Loan

Ass’n, 231 Cal. App. 3d 1089, 1096 (1991).

Plaintiffs allege that the lenders paid brokers higher

commissions on loans that were disadvantageous to borrowers and

that lenders trained brokers to sell such loans. SAC ¶ 49. 3

Plaintiffs further allege that defendants “failed to adequately

supervise, train, and direct their employees,” but plaintiffs’

allegations do not support the conclusion that the brokers were

themselves employees of the lender defendants. SAC ¶ 81.

Plaintiffs selectively quote Wyatt v. Union Mortg. Co., 24 Cal. 3d

773, 785 (1979) to argue that this conduct extends the broker’s

fiduciary duty to the lender, because the lender “directly ordered,

authorized, or participated in” the broker’s tortious conduct.

Wyatt held that “[d]irectors and officers of a corporation . . .

may become liable [for a corporation’s torts] if they directly

ordered, authorized or participated in the tortious conduct.”

(emphasis added). “Neither Wyatt nor the authorities cited therein

suggests that this rule imposes liability outside the relationship

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between a corporation and its officers.” Champlaie v. BAC Home

Loans Servicing, LP, ___ F. Supp. 2d ___, ___, 2009 WL 3429622,

*19, 2009 U.S. Dist. LEXIS 102285, *60-61 (E.D. Cal. Oct. 22,

2009). California cases following Wyatt have further suggested

that its rule is limited to this factual context. Doctors’ Co. v.

Superior Court, 49 Cal. 3d 39, 48 (1989), Filet Menu v. C.C.L. &

G., Inc., 79 Cal. App. 4th 852, 866 (2000). Thus, assuming the

truth of plaintiffs’ allegation that the lenders trained, etc., the

brokers, these allegations are insufficient to impose an otherwiseabsent fiduciary duty on the lenders.

Plaintiffs further argue that the brokers’ fiduciary duties

extended to the lenders on principles of conspiracy or agency law.

These arguments fail for the reasons explained in Champlaie. As

to agency, there is no allegation that the brokers, the alleged

agents, had the ability to bind the lenders, the alleged principal,

or that the lenders took some act indicating that such a

relationship existed. Accordingly, plaintiffs have not alleged

facts sufficient to give rise to an agency relationship under

California law. Cal. Civ. Code §§ 2295, 2299, 2300; J.L. v.

Children’s Institute, Inc., 177 Cal. App. 4th 388, 403-04 (2009).

As to conspiracy, under California law an alleged conspirator can

not be liable in civil conspiracy unless he personally owed the

duty that was breached. Applied Equipment Corp. v. Litton Saudi

Arabia Ltd., 7 Cal. 4th 503, 511, 514 (1994).

This is not to say that the lenders’ relationship with the

brokers was not wrongful. Indeed, it may be that this relationship

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was an unfair or fraudulent business practice. Such questions,

however, are beyond the scope of the present motion. Here, the

court determines that plaintiffs have again failed to demonstrate

a “special relationship” giving rise to a heightened duty of good

faith or tort liability on such a claim. Furthermore, construing

the complaint as asserting a claim for breach of fiduciary duty,

plaintiffs have failed to allege facts sufficient to support such

a claim. Because this is plaintiffs’ third complaint, and because

the court has previously identified these deficiencies, the court

dismisses this aspect of the claim with prejudice.

II. Conclusion

For the reasons stated above, defendants’ motion to dismiss

(Dkt. No. 36) is GRANTED IN PART. The court DISMISSES plaintiffs’

TILA claim only insofar as this claim seeks declaratory or

injunctive relief. The court also DISMISSES plaintiffs’ claim for

breach of the implied covenant of good faith and fair dealing only

insofar as this claim seeks tort damages or to impose a duty to

“pay at least as much regard to Plaintiffs’ interests as to

Defendants’ interests.” Dismissal of these claims is WITH

PREJUDICE. Defendants’ motion is otherwise DENIED. At this point,

the court does not require plaintiffs to file an amended complaint

reflecting these changes.

IT IS SO ORDERED.

DATED: August 10, 2010.

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