Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_08-cv-04316/USCOURTS-cand-5_08-cv-04316-9/pdf.json

Nature of Suit Code: 480
Nature of Suit: Consumer Credit
Cause of Action: 28:1441 Petition for Removal

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NO. C 08-04316 RS

ORDER

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United States District Court

For the Northern District of California 

*E-Filed 02/16/2010* 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF CALIFORNIA 

SAN JOSE DIVISION 

HENRY BOTELHO, 

 Plaintiff, 

 v. 

U.S. BANK, N.A., as Trustee for the LXS 

2007-4N Trust, 

 Defendant. 

____________________________________/

No. C 08-04316 RS 

ORDER DENYING DEFENDANT’S 

MOTION TO DISMISS 

 Defendant U.S. Bank, N.A., as Trustee for the LXS 2007-4N Trust (“U.S. Bank”), seeks 

dismissal under Federal Rule of Civil Procedure 12(b)(6) of a complaint filed by plaintiff 

homeowner Henry Botelho. Specifically, U.S. Bank claims that Botelho cannot state a claim for 

rescission of his mortgage loan under the Truth in Lending Act, 15 U.S.C. § 1601 et seq., unless he 

alleges a present ability to tender the loan proceeds. As discussed in further detail below, such an 

allegation is not necessary for Botelho’s case to survive the pleading stage. Accordingly, U.S. 

Bank’s motion is denied. 

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I. FACTUAL AND PROCEDURAL HISTORY 

According to the averments of the Second Amended Complaint (“SAC”),1

 Botelho 

purchased a home in 2006 located at 1710 Stanton Avenue, San Pablo, California. To finance the 

purchase, he entered into a residential loan transaction with MortgageIT, Inc. (“MortgageIT”). At 

escrow on October 11, 2006, Botelho claims to have received pre-printed, unsigned copies of 

documents associated with his loan. Among these, he alleges, were two copies of a form entitled 

“Notice of Right to Cancel,” both dated September 28, 2006. According to Botelho, the forms 

explained that he had the right to rescind the loan but did not state that this right had an expiration 

date. 

The SAC is somewhat unclear as to the chain of ownership of Botelho’s note, but it implies 

that ownership passed from MortgageIT to IndyMac Bank, F.S.B. (“IndyMac”), then to the Federal 

Deposit Insurance Corporation (“FDIC”), and finally to U.S. Bank. The note is currently owned by 

the LXS 2007-4N Trust, with U.S. Bank serving as trustee. 

Botelho decided to rescind his loan in November 2007, more than a year after escrow took 

place. Accordingly, he gave notice of rescission to MortgageIT and IndyMac, both of whom 

refused to comply. Botelho therefore filed a complaint against MortgageIT and IndyMac, alleging 

violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. (“TILA”) and 12 C.F.R. § 226 

(“Regulation Z”). Specifically, he claims that he was entitled to rescission because MortgageIT and 

IndyMac failed to deliver two copies of a “Notice of Right to Cancel” form that clearly and 

conspicuously disclosed the date of the transaction and the date the rescission period expired. 

Botelho later dropped MortgageIT and IndyMac from the lawsuit and added the FDIC, IndyMac’s 

successor. Finally, after the FDIC determined it had no interest in Botelho’s note, he dropped the 

 

1

 Federal Rule of Civil Procedure 15(a) provides that pleadings, including complaints, may be 

amended once as a matter of course under certain conditions. Fed. R. Civ. P. 15(a)(1). After the 

first amendment as of right, however, parties may only make further amendments with the court’s 

leave. Fed. R. Civ. P. 15(a)(2). Such leave is to be “freely give[n] when justice so requires.” Id. Here, Botelho has neither asked for, nor received, leave to file the SAC. Nonetheless, in light of 

Rule 15’s permissive standard for amendments, the Court will deem it properly filed. 

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FDIC and added U.S. Bank. U.S. Bank now moves to dismiss. The motion was heard in this Court 

on February 3, 2010. 

II. ANALYSIS 

A. Judicial Notice

In conjunction with its motion to dismiss, U.S. Bank filed two requests for judicial notice. 

Facts subject to judicial notice may be considered in deciding a motion to dismiss. Mullis v. U.S. 

Bankr. Court, 828 F.2d 1385, 1388 (9th Cir. 1987). Under Federal Rule of Evidence 201, “[a] 

judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally 

known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready 

determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 

201(b). In other words, “‘the fact must be one that only an unreasonable person would insist on 

disputing.’” Walker v. Woodford, 454 F. Supp. 2d 1007, 1022 (S.D. Cal. 2006) (quoting United 

States v. Jones, 29 F.3d 1549, 1553 (11th Cir. 1994)). 

The first document U.S. Bank asks the Court to notice is a fully-filled out form bearing the 

title “Notice of Right to Cancel,” setting a three day rescission deadline, and purporting to bear 

Botelho’s signature. Exh. 1, Request for Judicial Notice, filed December 15, 2009. In support of its 

request, U.S. Bank points to a series of cases in this Circuit where district courts have taken judicial 

notice of loan documents. Lynch v. RKS Mortgage, Inc., 588 F. Supp. 2d 1254, 1256 n.2 (E.D. Cal. 

2008) (granting defendant banks’ request for judicial notice of loan documents when plaintiff 

homeowner had not challenged the documents’ authenticity and had referred to them throughout his 

complaint); Seagren v. Aurora Loan Servs., Inc., No. CV 09-5050 ODW (AGRx), 2009 WL 

3534171, at *2 (C.D. Cal. Oct. 28, 2009) (granting defendant bank’s request for judicial notice of 

signed “Notice of Right to Cancel” form after plaintiff homeowner failed to oppose request); Pineda 

v. GMAC Mortgage LLC, No. CV 08-5341 AHM (PJWx), 2008 WL 5432281, at *5-6 (C.D. Cal. 

Dec. 29, 2008) (granting defendant bank’s request for judicial notice of loan documents after 

plaintiff homeowner failed to oppose the request, even though the complaint itself claimed that the 

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documents contained forged signatures); Johnson v. First Fed. Bank of Calif., No. C 08-00264 PVT, 

2008 WL 682497, at *2 n.5 (N.D. Cal. March 10, 2008) (taking judicial notice of loan documents 

after noting that they were already a matter of public record because they were attached to a motion 

the defendant bank had filed in plaintiff’s bankruptcy case). 

Unlike the plaintiffs in these cases, Botelho actively opposes the bank’s request for judicial 

notice—an indication that the document’s authenticity is not so clear “that only an unreasonable 

person would insist on disputing” it. Walker, 454 F. Supp. 2d at 1022; see also Lopez v. Wachovia 

Mortgage, 2:09-CV-01510-JAM-DAD, 2009 WL 4505919, at *2 (E.D. Cal. Nov. 20, 2009) (taking 

judicial notice of those loan documents which the parties agreed were authentic, but declining to do 

so for the one loan document whose authenticity plaintiff disputed); Anderson v. Countrywide Fin., 

No. 2:08-cv-01220-GEB-GGH, 2009 WL 3368444, at *2-3 (declining to take judicial notice of 

signed “Notice of Right to Cancel” forms, when plaintiff objected to the judicial notice and attached 

a competing “Notice of Right to Cancel” to her own complaint). Fundamentally, the heart of 

Botelho’s entire complaint is contained in his allegation that he did not see or receive copies of this 

very document which U.S. Bank now contends bears his signature. Therefore, it is apparent from 

the face of the complaint that the authenticity of the signed “Notice of Right to Cancel” form is not 

“capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably 

be questioned.” Fed. R. Evid. 201(b)(2). Judicial notice of the document is thus inappropriate. 

U.S. Bank’s second judicial notice request pertains to various court papers documenting 

Botelho’s bankruptcy proceedings. See Exh. 2-6, Supplemental Request for Judicial Notice, filed 

January 20, 2010. Judicially noticed facts often consist of matters of public record, such as prior 

court proceedings, see, e.g., Emrich v. Touche Ross & Co., 846 F.2d 1190, 1198 (9th Cir. 1988); 

administrative materials, see, e.g., Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir. 1994); or other 

court documents, see, e.g., Rothman v. Gregor, 220 F.3d 81, 92 (2d Cir. 2000) (taking judicial 

notice of a filed complaint as a public record). The Ninth Circuit has traditionally interpreted Rule 

201 as allowing courts to “take notice of proceedings in other courts, both within and without the 

federal judicial system, if those proceedings have a direct relation to matters at issue.” United States 

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ex rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992); see 

also Kasey v. Molybdenum Corp. of Am., 336 F.2d 560, 563 (9th Cir. 1964) (ruling that the U.S. 

District Court for the Eastern District of California was correct to take judicial notice of court 

records from a related case in the U.S. District Court for the Southern District of California). 

Here, U.S. Bank asks the Court to take notice of (1) the docket report in Botelho’s 

bankruptcy case in the Northern District of California (Exh. 2); (2) Botelho’s Voluntary Chapter 13 

bankruptcy petition, filed May 19, 2009 (Exh. 3); (3) his Chapter 13 Statement of Current Monthly 

Income and Calculation of Commitment Period and Disposable Income (Exh. 4); (4) his Chapter 13 

plan (Exh. 5); and (5) a Confirmation Order entered by the Court following a creditors’ meeting 

(Exh. 6). The guidance noted above from the Ninth Circuit and several district courts suggests there 

is some precedent for the judicial notice of these five documents, in the right circumstances. 

Nonetheless, an examination of the documents and their content indicates that they have little or no 

bearing on the determination of the instant motion. For this reason, the propriety of judicially 

noticing them need not be resolved in conjunction with this request for dismissal, and the request for 

judicial notice as to these documents will therefore be denied. 

B. Motion to Dismiss

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims alleged in 

the complaint. See Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Dismissal 

under Rule 12(b)(6) may be based either on the “lack of a cognizable legal theory” or on “the 

absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police 

Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). Hence, the issue on a motion to dismiss for failure to state 

a claim is not whether the claimant will ultimately prevail but whether the claimant is entitled to 

offer evidence to support the claims asserted. Gilligan v. Jamco Dev. Corp., 108 F.3d 246, 249 (9th 

Cir. 1997). When evaluating such a motion, the court must accept all material allegations in the 

complaint as true and construe them in the light most favorable to the non-moving party. Cahill v. 

Liberty Mut. Ins. Co., 80 F.3d 336, 339 (9th Cir. 1996). “[C]onclusory allegations of law and 

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unwarranted inferences,” however, “are insufficient to defeat a motion to dismiss for failure to state 

a claim.” Epstein v. Wash. Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996). 

U.S. Bank presents two arguments as to why the instant complaint should be dismissed 

under Rule 12(b)(6). First, it argues that Botelho is spuriously contending that he did not receive 

two copies of the “Notice of Right to Cancel” that clearly and conspicuously disclosed the date of 

the transaction and the date the rescission period expired. According to U.S. Bank, Botelho himself 

has acknowledged in writing his receipt of two such copies. Therefore, it is argued, his complaint 

should be dismissed. 

This argument relies entirely upon U.S. Bank’s success on its request for judicial notice of 

the alleged signed receipt—a result which, as noted above, has not transpired. The standard of 

review for a Rule 12(b)(6) motion dictates that all material allegations in the complaint must be 

taken as true, including, in this instance, Botelho’s allegation that he did not receive the requisite 

notice. U.S. Bank’s only available avenue to overcome Botelho’s averment at the pleading stage is 

its ill-fated request for judicial notice, and therefore this argument does not warrant dismissal of the 

action. 

U.S. Bank next contends that Botelho fails to state a claim for rescission under TILA and 

Regulation Z because he has not alleged that he has the present ability to tender the loan proceeds. 

Botelho does not take the position that he has alleged such an ability, but rather argues that he 

should be allowed to proceed on his rescission claim without such an express allegation in the 

complaint. 

The procedure governing rescission of a loan transaction under TILA is set forth in 15 

U.S.C. § 1635(b), which provides, in relevant part: 

Within 20 days after receipt of a notice of rescission, the creditor shall return to the obligor 

any money or property given as earnest money, downpayment, or otherwise, and shall take 

any action necessary or appropriate to reflect the termination of any security interest created 

under the transaction. If the creditor has delivered any property to the obligor, the obligor 

may retain possession of it. Upon the performance of the creditor’s obligations under this 

section, the obligor shall tender the property to the creditor, except that if return of the 

property in kind would be impracticable or inequitable, the obligor shall tender its 

reasonable value. 

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In Yamamoto v. Bank of New York, the Ninth Circuit explained that a district court may alter 

the rescission procedures described in TILA and retains “discretion to condition rescission on tender 

by the borrower of the property he had received from the lender.” 329 F.3d 1167, 1171 (9th Cir. 

2003) (internal quotation marks and citation omitted). Whether rescission should be so conditioned 

“depends upon the equities present in a particular case, as well as consideration of the legislative 

policy of full disclosure that underlies the Truth in Lending Act and the remedial-penal nature of the 

private enforcement provisions of the Act.” Id. (internal quotation marks and citation omitted). 

U.S. Bank reads Yamamoto to stand for the proposition that district courts may, in their 

discretion, require any plaintiff trying to state a claim for rescission under TILA to represent an 

ability to tender loan proceeds in the complaint. In effect, this would confer upon the district court 

the discretionary power to add, in particular cases and based on uncertain criteria, an item to the list 

of elements required to state a rescission claim. Yamamoto does not authorize such an unorthodox 

procedure. It was decided in the procedural context of summary judgment, when the district court 

was in a position to consider a full range of evidence in deciding whether to condition rescission on 

tender. Id. at 1173 (explaining that the court’s discretion should be governed by “all the 

circumstances including the nature of the violations and . . . . [whether] the evidence [shows] that 

the borrower lacks capacity to pay back what she has received” (emphasis added)). 

The instant case stands in an entirely different procedural posture. The litigation here has 

progressed only as far as the pleading stage. The Court cannot consider any evidence to show that 

the borrower lacks capacity to pay back what he has received, because there is no evidence of any 

kind before the Court. There are only the averments of the complaint.2

 Yamamoto cannot be read to 

vest in the district courts discretion to require some plaintiffs to plead an extra element in their TILA 

complaints, but not to require it of others. 

 

2

 Indeed, Rule 12(d) effectively bars the introduction of any outside evidence in the 12(b)(6) 

context, by providing that any motion under Rule 12(b)(6) which presents matters outside the 

pleadings “must be treated as [a motion] for summary judgment under Rule 56.” Fed. R. Civ. P. 

12(d) (emphasis added). 

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Admittedly, U.S. Bank correctly argues that district courts are far from united in their 

reading of Yamamoto. In fact, courts in this district and elsewhere have produced a variety of 

responses to the question posed by this case. Compare, e.g., Avina v. BNC Mortgage, No. C 09-

04710 JF, 2009 WL 5215751, at *2-3 (N.D. Cal. Dec. 29, 2009) (collecting cases and concluding 

that the court could exercise its discretion to require the homeowner plaintiff to allege “either the 

present ability to tender the loan proceeds or the expectation that she will be able to tender within a 

reasonable time”), and Mangindin v. Wash. Mut. Bank, No. C 09-01268 JW, 2009 WL 1766601, at 

*3 (N.D. Cal. June 18, 2009) (dismissing claim for rescission where plaintiffs failed to allege “that 

they attempted to tender, or are capable of tendering, the value of the property” or “that such 

equitable circumstances exist that conditioning rescission on any tender would be inappropriate”), 

with, e.g., Singh v. Wash. Mut. Bank, No. C 09-02771 MMC, 2009 WL 25888885, at *3 (N.D. Cal. 

Aug. 19, 2009) (collecting cases and noting that Yamamoto did “not hold that a claim for rescission 

must, in all instances, be conditioned on a tender offer by the plaintiff”), and ING Bank v. Ahn, No. 

C 09-00995 TEH, 2009 WL 2083965, at *2 (N.D. Cal. July 13, 2009) (noting “Yamamoto did not 

hold that a district court must, as a matter of law, dismiss a case if the ability to tender is not 

pleaded”). 

Since no consensus has yet emerged from this milieu, a careful interpretation of Yamamoto 

is in order. As explained above, Yamamoto’s procedural posture and concluding language strongly 

suggest that district courts lack the discretion, at the pleading stage, to require TILA plaintiffs to 

allege the present ability to tender. 329 F.3d at 1173 (implying that district courts should base their 

decision as to when a plaintiff must show ability to tender on the particular “circumstances” and 

“evidence” of each case). This reading of Yamamoto is also consistent with the liberal pleading 

standards of Federal Rule of Civil Procedure 8, which require only that the averments of the 

complaint sufficiently establish a basis for judgment against the defendant. AlliedSignal, Inc. v. City 

of Phoenix, 182 F.3d 692, 696 (9th Cir. 1999). Finally, and most fundamentally, this is the most 

workable practice. It is hard to see how a judge could decide on the bare pleadings whether to 

require a given plaintiff to allege an extra element of a claim in order to proceed any further with his 

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or her suit. The enumerated elements of any given claim are among the most fixed of legal 

principles; a particular fact either must be pleaded every time in order to state a claim, or it need not 

be pleaded at all. The list of elements cannot be altered on a case-by-case basis. 

 In light of these considerations, Botelho’s complaint is not deficient for failure to plead 

ability to tender loan proceeds.3 As U.S. Bank points to no other weakness in his complaint besides 

his failure to include the tender allegation, Botelho’s case survives the 12(b)(6) challenge. U.S. 

Bank’s motion to dismiss is denied. 

IT IS SO ORDERED. 

Dated: 02/16/2010 

RICHARD SEEBORG 

UNITED STATES DISTRICT JUDGE 

 

3

 Although Yamamoto does not sanction dismissal, at the pleading stage, for failure to allege ability 

to tender, these considerations certainly come into play in the summary judgment context. See 

Yamamoto, 329 F.3d at 1173 (concluding that district courts do “not lack discretion to modify the 

sequence of rescission events [under TILA] to assure that [the borrower can] repay the loan 

proceeds before going through the empty (and expensive) exercise of a trial on the merits”). 

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