Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_11-cv-08177/USCOURTS-azd-3_11-cv-08177-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1441 Petition for Removal- Breach of Contract

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Gary F. Lowry and Marian Carol (husband 

and wife), 

Plaintiffs, 

v. 

EMC Mortgage Corporation; JPMorgan 

Chase & Company; JPMorgan Chase, N.A., 

Defendants. 

No. CV-11-08177-PCT-JAT

ORDER 

 Pending before the Court are: (1) Defendants’ Motion to Dismiss Amended 

Complaint (Doc. 25); and (2) Plaintiffs’ Motion to Stay (Doc. 31). The Court now rules 

on the Motions. 

I. Plaintiffs’ Motion to Stay (Doc. 31) 

 On October 28 2012, Plaintiffs requested that this case be stayed pending a 

decision by the U.S. Judicial Panel on Multidistrict Litigation (the “Panel”) on Plaintiffs’ 

Motion to Transfer. On February 8, 2013, the Panel issued an Order denying Plaintiffs’ 

request to transfer their case. (Doc. 36). Accordingly, Plaintiffs’ Motion to Stay is 

denied as moot. 

II. Defendants’ Motion to Dismiss (Doc. 25) 

 A. Procedural Background 

Plaintiffs filed a Complaint in Maricopa County Superior Court alleging claims of 

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(1) unlawful, unfair, and deceptive business practices; (2) breach of contract and breach 

of the duty of good faith and fair dealing; (3) unjust enrichment; (4) unfair debt collection 

practices; (5) promissory estoppel; (6) violations of consent judgments; (7) violations of 

the Equal Opportunity Credit Act; and (8) fraud through securitization. (Doc. 1-1). 

Defendants then removed the case to this Court. Thereafter, Defendants filed a Motion to 

Dismiss the Complaint. (Doc. 6). After the Motion to Dismiss was fully briefed, the 

Court granted the Motion to Dismiss, but allowed Plaintiffs leave to amend finding that 

certain deficiencies in the Complaint could possibly be cured by allegations of other 

facts. (Doc. 23). 

 Plaintiffs then filed an eighty-eight page Amended Complaint. (Doc. 24). 

Defendants now move to dismiss the Amended Complaint pursuant to Federal Rules of 

Civil Procedure 8 and 12(b)(6). 

 B. Legal Standard 

To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must 

meet the requirements of Rule 8. Rule 8(a)(2) requires a “short and plain statement of the 

claim showing that the pleader is entitled to relief,” so that the defendant has “fair notice 

of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly,

550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). 

 Although a complaint attacked for failure to state a claim does not need detailed 

factual allegations, the pleader’s obligation to provide the grounds for relief requires 

“more than labels and conclusions, and a formulaic recitation of the elements of a cause 

of action will not do.” Id. (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). The 

factual allegations of the complaint must be sufficient to raise a right to relief above a 

speculative level. Id.

 Rule 8’s pleading standard demands more than “an unadorned, the-defendantunlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing 

Twombly, 550 U.S. at 555). A complaint that offers nothing more than blanket assertions 

will not suffice. To survive a motion to dismiss, a complaint must contain sufficient 

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factual matter, which, if accepted as true, states a claim to relief that is “plausible on its 

face.” Id. Facial plausibility exists if the pleader pleads factual content that allows the 

court to draw the reasonable inference that the defendant is liable for the misconduct 

alleged. Id. Plausibility does not equal “probability,” but plausibility requires more than 

a sheer possibility that a defendant has acted unlawfully. Id. “Where a complaint pleads 

facts that are ‘merely consistent’ with a defendant’s liability, it ‘stops short of the line 

between possibility and plausibility of entitlement to relief.’” Id. (quoting Twombly, 550 

U.S. at 557). Because Plaintiffs are proceeding pro se, the Court must construe their 

Complaint liberally, even when evaluating it under the Iqbal standard. Johnson v. Lucent 

Technologies Inc., 653 F.3d 1000, 1011 (9th Cir. 2011). However, “[s]omething labeled 

a complaint but written more as a press release, prolix in evidentiary detail, yet without 

simplicity, conciseness and clarity as to whom plaintiffs are suing for what wrongs, fails 

to perform the essential functions of a complaint.” McHenry v. Renne, 84 F.3d 1172, 

1180 (9th Cir. 1996). “Prolix, confusing complaints ... impose unfair burdens on litigants 

and judges.” Id. at 1179. 

 In deciding a motion to dismiss under Rule 12(b)(6), the Court must construe the 

facts alleged in a complaint in the light most favorable to the drafter of the complaint, and 

the Court must accept all well-pleaded factual allegations as true. Shwarz v. United 

States, 234 F.3d 428, 435 (9th Cir.2000). Nonetheless, the Court does not have to accept 

as true a legal conclusion couched as a factual allegation, Papasan, 478 U.S. at 286, or an 

allegation that contradicts facts that may be judicially noticed by the Court, Shwarz, 234 

F.3d at 435. 

 C. Analysis 

In 2006, Plaintiffs Gary Lowry and Marian Carol obtained a loan from lender, 

EMC Credit Corporation in the amount of $480,000. The loan was secured by a Deed of 

Trust in favor of Encore Credit Corporation encumbering real property located at 2900 S. 

Blue Ranch Road Cottonwood, Arizona 86326 (the “Property”). In 2009, Plaintiffs and 

EMC Mortgage Corporation entered into a two-year loan modification agreement. 

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 Plaintiffs are ordained ministers operating a non-profit spiritual retreat center 

called Western Spirit Enrichment Center (“Western Spirit”). Plaintiffs allege that they 

leased the Property to Western Spirit in 2005 and Western Spirit has always made loan 

payments on the Property. Plaintiffs allege that they used the income of Western Sprit to 

qualify for their original loan in April 2006 as well as for the short-term modification in 

January 2009. 

 Plaintiffs allege that, since December 2010, they have tried to apply and qualify 

for a loan modification through the Making Home Affordable Program (“MHA”) and the 

Home Affordable Modification Program (“HAMP”), but have been denied any such 

modification. Plaintiffs’ claims in this case relate to the failed home loan modification. 

 In their Amended Complaint, Plaintiffs have chosen to reassert many of the failed 

claims identified in the Court’s previous Order granting Defendants’ Motion to Dismiss. 

Further, less than half of the eighty-eight pages in the Complaint actually concern any 

factual allegations relating to Plaintiffs or their claims in this matter. Rather, Plaintiffs 

appear to assert various theories of liability against Defendants based on generalized 

grievances against the mortgage industry and Defendants’ practices generally. This type 

of press-release-pleading makes it difficult for Defendants and the Court to ascertain the 

basis of Plaintiffs’ claims and does not meet Rule 8’s short, concise pleading standard. 

The Court will nonetheless attempt to ascertain the claims alleged in the Amended 

Complaint and will address whether Plaintiffs have stated a claim upon which relief can 

be granted in their numerous allegations. 

 In the caption of their Amended Complaint, Plaintiffs have listed their claims as 

(1) unlawful, unfair and deceptive business practices; (2) breach of contract and breach of 

the duty of good faith and fair dealing; (3) fraud; (4) unfair debt collection practices; (5) 

promissory estoppel; (6) violations of consent judgments; (7) violations of the Equal 

Opportunity Credit Act; and (8) fraud through securitization. Despite this seeming 

identification of their causes of action, Plaintiffs have only included five counts in the 

Amended Complaint: (1) violations of the Arizona Consumer Fraud Act/fraudulent 

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business practices; (2) unlawful business practices and unfair competition law; (3) breach 

of contract, breach of the duty of good faith and fair dealing; (4) unfair debt collection 

practices; and (5) promissory estoppel. The Court will discuss each category of claims 

herein. 

 (1) Breach of Contract and Breach of the Duty of Good Faith 

 and Fair Dealing (Count Three) 

Plaintiffs allege that Defendants breached a contract when they denied Plaintiffs’ 

loan modification for the reason that Plaintiffs’ personal income did not qualify Plaintiffs 

for a permanent loan modification. Plaintiffs allege that they qualified for their original 

loan using bank account information of Western Spirit and that it was illegal and 

fraudulent for Defendants to refuse to use the income of Western Spirit as a qualifier for 

the loan modification. Plaintiffs fail to point any provision of any contract requiring 

Defendants to use the income of Western Spirit, rather than the income of Plaintiffs 

themselves when considering Plaintiffs for a loan modification. Although Plaintiffs 

repeatedly allege that the failure to use the income of Western Spirit in determining 

Plaintiffs’ qualification for a loan modification was illegal and fraudulent, they fail to cite 

to any provision of a contract or any other law that would place such a requirement on 

Defendants. Accordingly, Plaintiffs have failed to state a claim upon which relief can be 

granted for breach of contract based on Defendants’ refusal to qualify Plaintiffs for a loan 

based on the income of a separate entity, Western Spirit. 

 Plaintiffs also allege that Plaintiffs’ interest rate is adjustable according to the 

LIBOR Index rate and “since Defendant JPMC has admitted involvement in the 

criminally artificial manipulation and rate-rigging scheme involving the Libor, according 

to the governmental authorities, this fraudulent act constitutes a breach of Plaintiffs’ loan 

contract and agreement.” (Doc. 23-24 at ¶ 120). Plaintiffs’ allegations regarding the 

LIBOR Index rate are conclusory and speculative and Plaintiffs fail to identify how the 

use of such index rate constitutes a breach of contract claim in this case. 

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 (2) Allegations Regarding Unlawful, Unfair and Deceptive 

 Business Practices and Unlawful Business Practices and 

 Unfair Competition Law (Count Two) and Violations of 

 Consent Judgments 

In the section of their Complaint entitled “Unlawful Business Practices and Unfair 

Competition Law,” Plaintiffs allege that Defendants violated federal law by breaching 

Chase’s agreement with Fannie Mae of which plaintiffs are intended third-party 

beneficiaries and breaching the servicer participation agreements between Defendants 

and HAMP for all mortgage loans they service. Plaintiffs allege that, by participating in 

the loan modification process and submitting all of the documentation requested by 

Defendants for a loan modification, they were entitled to a loan modification. Plaintiffs 

allege that, by following all of the requirements in applying for a loan modification, a 

binding contract was created between Plaintiffs and Defendants for a loan modification. 

 In its prior Order granting Defendants’ Motion to Dismiss the original complaint, 

the Court rejected these claims. The Court noted that simply applying for a loan 

modification did not evidence the existence of a contract between the parties. (Doc. 23 at 

13-14). The Court further held that Plaintiffs failed to state a claim for breach of contract 

under HAMP on a third-party beneficiary theory. (Id. at 14). Indeed, this Court has 

previously analyzed whether Plaintiffs could be third-party beneficiaries under HAMP in 

circumstances such as those alleged by Plaintiffs and has rejected such a claim. See 

Marks v. Bank of America, N.A., No. 3:10-cv-08039-PHX-JAT, 2010 WL 2572988, at 

*2-7 (D. Ariz. June 22, 2010) (holding that Plaintiff did not have standing to bring a 

breach of contract claim under HAMP on a third-party beneficiary theory because (1) it 

would not be reasonable for a borrower to rely on an agreement between a participating 

servicer and the Department of Treasury as manifesting an intention to confer a right on 

the borrower because the agreement does not require that the participating servicer 

modify eligible loans, (2) parties who benefit from government contracts are generally 

assumed to be incidental beneficiaries and may not enforce the contract absent clear 

intent to the contrary; (3) granting Plaintiff third-party beneficiary status would open the 

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door to three to four million individual claims, which would contravene the purpose of 

HAMP as an administrative tool to effectuate the goals of EESA, and (4) permitting 

individual claims would undermine Freddie Mac’s role as compliance officer for 

HAMP). Plaintiffs allege that Defendants considered their loan modification application 

and denied it for various stated reasons. Plaintiffs do not allege that Defendants refused 

to consider them for a loan modification. Plaintiffs fail to point to any provision of any 

contract between Defendants and any non-party to this suit to which they would be 

considered third-party beneficiaries. 

 Accordingly, Plaintiffs have failed to allege facts that would give them standing to 

sue Defendants for breaches of contract based on contracts between Defendants and third 

parties and any claims based on such allegations are dismissed. 

 (3) Fraud and Violations of the Arizona Consumer Fraud 

 Act/Fraudulent Business Practices (Count One) and 

 Violations of Equal Opportunity Credit Act and Fraud 

 Through Securitization 

In the section of their Complaint entitled “Violations of the Arizona Consumer 

Fraud Act/Fraudulent Business Practices,” Plaintiffs allege that the following instances 

show that Defendants committed consumer fraud: 

 First, Plaintiffs allege that, on October 31, 2008, Defendant JP Morgan Chase 

publicly announced that they were offering a loan modification program to borrowers 

who were not currently delinquent, but who could be at risk for defaulting. Plaintiffs 

allege that Chase stated in that announcement that they would work with homeowners in 

various ways to obtain a loan modification. Plaintiffs allege that Chase did not work with 

them in the ways described in the public announcement, so that such public 

announcement was fraudulent. 

 Plaintiffs’ allegations that these advertising promises were “knowingly false, 

deceitful, misleading and damaging to Plaintiffs” are conclusory and are not pled with 

sufficient facts. Further, Plaintiffs allegations that they were considered for a loan 

modification contradict these facts. Plaintiffs’ dissatisfaction with the denial of their loan 

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modification application does not render Chase’s statements made in the public 

announcement knowingly false, deceitful, or misleading. 

 Plaintiffs also claim that various representations made in letters that they received 

from Chase were knowingly false, deceitful and misleading, but Plaintiffs do not plead 

facts, that, if true, would lead to the conclusion that such representations were knowingly 

false, deceitful, or misleading. 

 Further, as in their original complaint, Plaintiffs again claim that statements by 

Defendants’ representatives that they should “hear something positive soon” and that 

they should continue making payments on their loan in the meantime were fraudulent 

because they were promises that the loan modification would be approved. Again, 

Plaintiffs do not plead facts, which, if true, would lead to the conclusion that such 

representations were knowingly false, deceitful, or misleading. 

 Plaintiffs also claim that they received three different reasons for the denial of 

their loan modification. Plaintiffs claim that, because they received three different 

reasons, all three reasons were false and fraudulent. Again, Plaintiffs do not plead facts 

supporting this conclusion. 

 None of these allegations support Plaintiffs’ conclusion that “Defendants engaged 

in unlawful and fraudulent practices in violation of the Consumer Fraud Act, the Equal 

Opportunity Credit Act, and other federal laws.” (Doc. 65 at ¶ 94). Accordingly, these 

claims will be dismissed. 

 Plaintiffs further argue that they were defrauded because their loan was sold into 

mortgage-backed securities. Plaintiffs agreed that their note could be sold one or more 

times without notice to Plaintiffs in the Deed of Trust and that this could result in a 

change to their Loan Servicer. Accordingly, Plaintiffs agreed to and were on notice that 

their note could be sold. See Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 

1034, 1042 (9th Cir. 2011). Moreover, Plaintiffs’ contention that the MERS system of 

securitization is so inherently defective that it renders their deed of trust completely 

unenforceable has been repeatedly rejected by this Court. In re Mortgage Elec. 

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Registration Sys. (MERS) Litig., MDL 09–2119–JAT, 2011 WL 4550189 at *4 (D. Ariz. 

Oct. 3, 2011). Accordingly, Plaintiffs’ allegations regarding the securitization of their 

loan fail to state a claim upon which relief can be granted and will be dismissed. 

 (4) Unfair Debt Collection Practices (Count Four) 

With regard to Plaintiffs’ allegations that Defendants violated the Fair Debt 

Collection Practices Act, Plaintiffs have failed to cure the deficiencies in these claims 

identified by the Court in its Order granting Defendants’ Motion to Dismiss the original 

complaint. Accordingly, these claims will be dismissed. 

 (5) Promissory Estoppel (Count Six) 

With regard to Plaintiffs’ allegations that promissory estoppel applies in this case, 

Plaintiffs have failed to cure the deficiencies in these claims identified by the Court in its 

Order granting Defendants’ Motion to Dismiss the original complaint. Accordingly, 

these claims will be dismissed. 

 III. Leave to Amend 

Under previous Ninth Circuit Court of Appeals precedent, the court would sua 

sponte grant leave to amend when granting a motion to dismiss, unless a pleading could 

not be cured by the allegation of other facts. See Lacey v. Maricopa County, 693 F.3d 

896, 927 (9th Cir.2012) (citing Doe v. United States, 58 F.3d 494, 497 (9th Cir.1995). 

However, this precedent has been called into question by the Court of Appeals, in light of 

the recent changes to the Federal Rule of Civil Procedure 15, which now allows parties 

twenty-one days from responsive pleadings and motions to dismiss to amend as of right. 

See id. Further, when a plaintiff requests leave to amend, the Court must consider the 

following factors: (1) undue delay, (2) bad faith, (3) prejudice to the opposing party, (4) 

futility of amendment, and (5) whether plaintiff has previously amended his complaint. 

Western Shoshone Nat. Council v. Molini, 951 F.2d 200, 204 (9th Cir.1991). In this case, 

granting leave to amend the complaint would be futile. Plaintiffs have previously been 

given an opportunity to amend their Complaint and have reasserted arguments already 

rejected by the Court in this case. 

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C

IV. 

Based

IT IS

IT IS

Complaint (D

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- 10

intiffs’ Mot

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The Clerk of

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tion to Stay

Defendant

f the Court 

 (Doc. 31) 

s’ Motion 

shall enter 

is denied as

to Dismis

judgment a

 moot. 

s Amended

ccordingly

d

y. 

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