Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-01216/USCOURTS-caed-2_09-cv-01216-2/pdf.json

Nature of Suit Code: 480
Nature of Suit: Consumer Credit
Cause of Action: 15:1601 Truth in Lending

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28 This matter is deemed suitable for decision without oral *

argument. E.D. Cal. R. 230(g).

1

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

JOSE FLORES and AMY LYNN FLORES, )

)

Plaintiffs, ) 2:09-cv-01216-GEB-GGH

)

v. ) ORDER GRANTING DEFENDANTS’

) MOTION TO DISMISS*

GMAC MORTGAGE; DEUTSCHE BANK )

NATIONAL TRUST COMPANY as trustee )

for MORTGAGE IT TRUST 2006, )

)

Defendants. )

)

On August 7, 2009, Defendants filed a motion to dismiss 

Plaintiffs’ First Amended Complaint (“FAC”) under Federal Rule of

Civil Procedure 12(b)(6), for failure to state a claim upon which

relief can be granted. Defendants also argue Plaintiffs are

judicially estopped from bringing their TILA claim since Plaintiffs

failed to disclose the TILA claim in their bankruptcy proceedings. 

For the following reasons, Defendants’ motion is granted. 

Case 2:09-cv-01216-GEB-GGH Document 23 Filed 02/11/10 Page 1 of 12
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I. Plaintiffs’ Factual Allegations in Their First Amended Complaint

On January 12, 2006, Plaintiffs Jose and Nancy Flores 

obtained a loan in the amount of $514,000.00 to purchase the

residential property located at 1707 Relvas Court in Folsom,

California. (FAC ¶ 10.) MortgageIT acted as lender and GMAC Mortgage

LLC serviced the loan. (FAC ¶ 13.) Deutsche Bank National Trust

Company now owns MortgageIT. (FAC ¶ 16.) MortgageIT failed to

provide Plaintiffs with two copies of their “Notice of Right to

Cancel” at the consummation of the loan as required by the Truth in

Lending Act (“TILA”). (FAC ¶¶ 25-26.) On December 31, 2008,

Plaintiffs sent a letter to Defendants in which they demanded

rescission of their loan under the provisions of TILA. (FAC ¶¶ 24,

38; FAC Ex. B.)

Plaintiffs allege the following claims: (1) violation of 

TILA, 15 U.S.C. §§ 1601 et seq.; (2) violation of the Real Estate

Settlement Procedures Act (“RESPA”), 12 U.S.C. §§ 2601, et seq.; (3)

violation of California Business and Professions Code section 17200;

(4) violation of the Fair Credit Reporting Act (“FCRA”), 12 U.S.C. §§

1681, et seq.; and (5) breach of the implied covenant good faith and

fair dealing. 

II. Legal Standard

“A Rule 12(b)(6) motion tests the legal sufficiency of a 

claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). To

avoid dismissal, Plaintiffs must allege “enough facts to state a claim

to relief that is plausible on its face.” Bell Atlantic Corp. v.

Twombly, 550 U.S. 544, 570 (2007). When considering a dismissal

motion, all “allegations of material fact are taken as true and

construed in the light most favorable to the nonmoving party.” 

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Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002). However, this

“tenet . . . is inapplicable to threadbare recitals of a cause of

action’s elements, supported by mere conclusory statements.” Ashcroft

v. Iqbal, 556 U.S. ---, 129 S.Ct. 1937, 1940 (2009).

III. Judicial Notice

Defendants request that the Court take judicial notice of 

the following documents related to Plaintiffs’ bankruptcy proceedings:

(1) Voluntary Petition for Chapter 7 bankruptcy protection filed by

Plaintiffs in the United States Bankruptcy Court, Eastern District of

California, Case No. 08-37210, dated November 24, 2008; (2) Amended

Schedules B and C, filed in Case No. 08-37210, dated December 1, 2008;

(3) the Report of No Assets Case, filed by Bankruptcy Trustee Michael

F. Burkhart in Case No. 87-37210, dated December 24, 2008; (4) Motion

of Relief from Automatic Stay and Points and Authorities in Support of

the Motion, filed in Case No. 08-37210, each dated February 17, 2009 ;

(5) the Discharge of Debtor Order in Case No. 08-37210, dated March 3,

2009; and (6) the Order Granting Motion for Relief from Automatic Stay

in Case No. 08-37210, dated April 3, 2009. (Request for Judicial

Notice (“RJN”) Exs. 1-6.) 

“Materials from a proceeding in another tribunal are 

appropriate for judicial notice.” Biggs v. Terhune, 334 F.3d 910, 915

n.3 (9th Cir. 2003). “[A]mple authority exists which recognizes that

matters of public record, including court records in related or

underlying cases which have a direct relation to the matters at issue,

may be looked to when ruling on a 12(b)(6) motion to dismiss.” In re

Am. Cont’l Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537

(9th Cir. 1996) (collecting cases), rev’d on other grounds by Lexecon,

Inc. v. Milberg Weiss Bershad Hynes & Lerach, 523 U.S. 26 (1998). 

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Plaintiffs have not objected to Defendants’ request for judicial

notice. The Court has reviewed the Bankruptcy Docket in Case No. 08-

37210, and takes judicial notice of these documents under Federal Rule

of Evidence 201 since they are matters of public record. See Pritinik

v. Comerica Bank, 2009 WL 3857455, *3 (N.D. Cal. 2009) (taking

judicial notice of bankruptcy filings); Rosal v. First Federal Bank of

California, -- F. Supp. 2d ---, 2009 WL 2136777, *4 (N.D. Cal. 2009)

(taking judicial notice of bankruptcy court filings in support of

motion to dismiss under Rule 12(b)(6)); Cobb v. Aurora Loan Services,

LLC, 408 B.R. 351, 354 (E.D. Cal. 2009) (considering plaintiff’s

bankruptcy filings in deciding defendant’s motion to dismiss).

IV. Analysis

A. Judicial Estoppel of Plaintiffs’ TILA Claim

Defendants argue Plaintiffs’ TILA claims are “barred by the 

doctrine of judicial estoppel because [Plaintiffs] failed to disclose

them in their bankruptcy,” and should be dismissed with prejudice.

(Mot. to Dismiss 8:4-5.)

“Judicial estoppel, sometimes also known as the doctrine of 

preclusion of inconsistent positions, precludes a party from gaining

an advantage by taking one position, and then seeking a second

advantage by taking an incompatible position.” Rissetto v. Plumbers

and Steamfitters Local 343, 94 F.3d 597, 600 (9th Cir. 1996). “In the

bankruptcy context, a party is judicially estopped from asserting a

cause of action not raised in a reorganization plan or otherwise

mentioned in the debtor’s schedules or disclosure statements.” 

Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 783 (9th Cir. 

//

//

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2001); see also Hay v. First Interstate Bank of Kalispell, N.A., 978

F.2d 555, 557 (9th Cir. 1992) (holding that the failure to give notice

of a potential cause of action in bankruptcy schedules and disclosure

statements estops the debtor from prosecuting that cause of action).

A court “may” consider three factors in deciding whether to 

exercise its discretion in applying the doctrine of judicial estoppel

in a particular case:

First, a party’s later position must be ‘clearly

inconsistent’ with its earlier position. Second, 

. . . whether the party has succeeded in persuading

a court to accept that party’s earlier position, so

that judicial acceptance of an inconsistent

position in a later proceeding would create ‘the

perception that either the first or the second

court was misled . . . . [T]hird[,] . . . whether

the party seeking to assert an inconsistent

position would derive an unfair advantage or impose

an unfair detriment on the opposing party if not

estopped.

Hamilton, 270 F.3d at 782-83 (quoting New Hampshire v. Maine, 532 U.S.

742, 750-51 (2001) (cites and quotations omitted)).

Here, Plaintiffs are taking “clearly inconsistent” positions 

by asserting TILA claims against Defendants which they failed to list

as assets on their bankruptcy schedules. Hamilton, 270 F.3d at 784;

(See RJN Exs. 1, 2.) Plaintiffs argue their positions are not

inconsistent since “the claim of rescission was disclosed to the

trustee of the estate” in a letter dated February 20, 2009 attached as

Exhibit A to Plaintiffs’ Opposition. (Plts.’ Opp’n 16:1-2; Ex. A.) 

The Ninth Circuit rejected a similar argument in Hamilton, holding:

Regardless, notifying the trustee by mail or

otherwise is insufficient to escape judicial

estoppel. 11 U.S.C. 521(1) provides that ‘[t]he

debtor shall file a list of creditors, and unless

the court orders otherwise, a schedule of assets

and liabilities, a schedule of current income and

current expenditures, and a statement of the

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debtor’s financial affairs. [Plaintiffs are]

required to have amended [their] disclosure

statements and schedules to provide the requisite

notice, because of the express duties of disclosure

imposed on [them] by 11 U.S.C. § 521(1), and

because both the court and [Plaintiffs’] creditors

base their actions on the disclosure statements and

schedules.

Hamilton, 270 F.3d at 784. Plaintiffs failed to list their TILA

claims against Defendants as assets in the bankruptcy proceeding as

required by 11 U.S.C. § 521(1). The absence of these claims as assets

was instrumental to the bankruptcy court’s decision to issue a “Report

of No Assets” and the “Discharge of Debtor” Order. (RJN Exs. 3, 5.) 

Now, however, Plaintiffs take an inconsistent position in this case by

seeking to obtain monetary and declaratory benefits based on alleged

violations of TILA that should have been disclosed during the pendency

of their bankruptcy proceeding.

Additionally, Plaintiffs had knowledge of the facts 

comprising their TILA claim during the pendency of their bankruptcy. 

“Judicial estoppel will be imposed when the debtor has knowledge of

enough facts to know that a potential cause of action exists during

the pendency of the bankruptcy, but fails to amend his schedules or

disclosure statements to identify the cause of action as a contingent

asset.” Hamilton, 270 F.3d at 784. “The Bankruptcy Code and Rule

impose upon the bankruptcy debtors an express, affirmative duty to

disclose all assets, including contingent and unliquidated claims. 

The debtor’s duty to disclose potential claims as assets does not end

when the debtor files schedules, but instead continues for the

duration of the bankruptcy proceeding.” Id. at 785 (cites and

quotations omitted) (emphasis in original). Here, Plaintiffs’ 

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counsel demanded rescission of the loan under TILA in the December 31,

2008 letter. (FAC Ex. B.) Plaintiffs’ bankruptcy discharge was

granted on March 3, 2009. (RJN Ex. 5.) Accordingly, Plaintiffs had

knowledge of the facts comprising their TILA claim during the pendency

of their bankruptcy.

Therefore, Plaintiffs are judicially estopped from 

proceeding on their TILA claims against Defendants, and Defendants’

motion to dismiss Plaintiffs’ TILA claims with prejudice is GRANTED.

B. Real Estate Settlement Procedures Act

Defendants also seek dismissal with prejudice of Plaintiffs’

second claim, in which Plaintiffs allege Defendants violated § 2605(e)

of RESPA by failing to provide a proper and timely written response to

Plaintiffs’ Qualified Written Request (“QWR”) sent on December 31,

2008. Defendants argue Plaintiffs’ December 31 letter is not a QWR

since it “fails to explain Plaintiffs’ reason for believing there was

any error on the account.” (Mot. to Dismiss 9:24-25.)

Under RESPA, “If any servicer of a federally related 

mortgage loan receives a [QWR] from the borrower for information

relating to the servicing of such loan, the servicer shall provide a

written response acknowledging receipt of the correspondence within 20

days . . . .” 12 U.S.C. § 2605(e)(1)(A) (emphasis added). “Not later

than 60 days after the receipt [of the QWR] . . . the servicer shall 

. . . make appropriate corrections [to] the account . . .[, or]

provide the borrower with a written explanation . . . of the reasons 

. . . the account of the borrower is correct . . . [, or] provide the

borrower with . . . an explanation of why the information requested is

unavailable . . . .” 12 U.S.C. § 2605(e)(2). “The term ‘servicing’

means receiving any scheduled periodic payments . . . and making the

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payments of principal and interest and such other payments with

respect to the amounts received from the borrower as may be required

pursuant to the terms of the loan.” 12 U.S.C. § 2605(i)(3). A QWR is

a written correspondence that “includes a statement of the reasons for

the belief of the borrower . . . that the account is in error or

provides sufficient detail to the servicer regarding other information

sought by the borrower.” 12 U.S.C. § 2605(e)(1)(B).

Here, Plaintiffs’ December 31, 2008 letter does not 

“relat[e] to the servicing of the loan.” 28 U.S.C. § 2605(e)(1). The

letter states:

The loan being serviced is defective. Mr. and Mrs.

Flores were provided four copies of the Notice of

Right to Cancel (copy attached as Exhibit “b”). It

has been determined that the only copies provided

to Mr. and Mrs. Flores have blank dates for the

date their right of rescission expires. As such,

this error of not providing proper copies with the

correct dates of the Notice of Right to Cancel, as

required by TILA, extends the right to cancel for 3

years.

The letter does not contain a statement of the reasons Plaintiffs

believe the account was in error or details regarding other loan

servicing information sought by Plaintiffs. In the letter, Plaintiffs

“simply disputed the validity of the loan and not its servicing.” 

Consumer Solutions REO, LLC v. Hillery, -- F. Supp. 2d ---, 2009 WL

2711264, *9 (N.D. Cal. 2009) (“That a QWR must address the servicing

of the loan, and not its validity, is borne out by the fact that §

2605(e) expressly imposes a duty upon the loan servicer, and not the

owner of the loan.”). Since Defendants did not “receive[] a [QWR]

from [Plaintiffs] for information relating to the servicing of [the]

loan,” Defendants had no duty to respond to Plaintiffs’ letter under

12 U.S.C. § 2605(e)(1)(A). Therefore, Plaintiffs’ claim under RESPA

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fails, and Defendants’ motion to dismiss Plaintiffs’ RESPA claim with

prejudice is GRANTED.

C. Fair Credit Reporting Act

Defendants also seek dismissal of Plaintiffs’ fourth claim 

alleged under FCRA, arguing “no private cause of action” exists. 

Plaintiffs argue this claim is premised on 12 U.S.C. § 1681s-2(b),

which “is privately enforceable.” Nelson v. Chase Manhattan Mortgage

Corp., 282 F.3d 1057, 1060 (9th Cir. 2002). Plaintiffs allege

Defendants violated FCRA by “report[ing] the Flores loan as delinquent

despite the pending rescission matter.” (FAC ¶ 81.) Plaintiffs do

not allege what information Defendants reported, to whom they reported

the information, whether that information was inaccurate, or what they

rely on when they reference “the pending rescission matter.” 

Plaintiffs’ “conclusory statements” are insufficient to allege a

cognizable claim. Iqbal, 556 U.S. ---, 129 S.Ct. at 1940. Therefore,

Defendants’ motion to dismiss Plaintiffs’ FCRA claim is granted. 

D. California Business and Professions Code Section 17200

Finally, Defendants seek dismissal of Plaintiffs’ third

claim, in which Plaintiffs allege Defendants violated California

Business and Professions Code section 17200 (the “UCL”) by

participating in unfair and fraudulent business practices. Defendants

argue “No where do Plaintiffs explain [what] is either unfair,

unlawful, or fraudulent . . . .” (Mot. 11:20-21.) Plaintiffs allege

Defendants are liable under the UCL for violating TILA and RESPA, for

filing a motion for relief from the stay in Plaintiffs’ bankruptcy

case, and for writing a letter dated January 20, 2009 requiring “that

any authorization to respond to [QWR’s] could only be on their

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documentation even though the statute does not allow them to impose

such a demand.” (FAC ¶¶ 74, 75, 77.)

//

California’s UCL “prohibits specific practices which the 

legislature has determined constitute unfair trade practices.” CalTech Commc’ns. Inc. v. L.A. Cellular Telephone Co., 20 Cal. 4th 163,

179 (1999) (quotations and citations omitted). “[A]n action based on

[the UCL] to redress an unlawful business practice ‘borrows’

violations of other laws and treats these violations . . . as unlawful

practices, independently actionable under section 17200 et seq. and

subject to the distinct remedies provided thereunder.” Farmers Ins.

Exchange v. Superior Court, 2 Cal. 4th 377, 383 (1992) (quotations and

citations omitted). “A plaintiff alleging unfair business practices

under [the UCL] must state with reasonable particularity the facts

supporting the statutory elements of the violation.” Khoury v. Maly’s

of California, Inc., 14 Cal. App. 4th 612, 619 (1993).

Plaintiffs’ UCL claim is deficient. Plaintiffs have not 

explained how Defendants’ filing of a motion for relief from a stay in

a bankruptcy case is an “unlawful, or unfair, or fraudulent” busienss

practice in violation of section 17200. Lippitt v. Raymond James Fin.

Serv., Inc., 340 F.3d 1033, 1043 (9th Cir. 2003). Nor have Plaintiffs

explained how Defendants’ requirement that QWR’s “be on [Defendants’]

documentation” constitutes a violation of the UCL. Finally, the

remainder of Plaintiffs’ UCL claim is entirely premised upon other

claims in their FAC which, as stated above, fail to state a claim. 

Therefore, Plaintiff’s UCL claim is also insufficient to state a

claim, and Defendants’ motion to dismiss this claim is GRANTED.

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E. Breach of Implied Covenant of Good Faith and Fair Dealing

Defendants also seek dismissal of Plaintiffs’ fifth claim 

for breach of the implied covenant of good faith and fair dealing, 

arguing “it is well settled that the implied covenant is not

recognized in the context of a mortgage loan transaction.” (Mot.

13:19-20.) Plaintiffs allege Defendants breached the implied covenant

of good faith and fair dealing by failing to provide Plaintiffs with

the Notice of Right to Cancel and subsequently failing to properly

respond to Plaintiffs’ QWR. (FAC ¶¶ 87, 91-92.) 

Plaintiffs seek both tort and contract remedies in their 

breach of the implied covenant of good faith and fair dealing claim. 

Under California law, every contract “imposes upon each party a duty

of good faith and fair dealing in its performance and its

enforcement.” McClain v. Octagon Plaza, LLC, 159 Cal. App. 4th 784,

798 (2008). However, “[t]he covenant . . . cannot be endowed with an

existence independent of its contractual underpinnings. It cannot

impose substantive duties or limits on the contracting parties beyond

those incorporated in the specific terms of their agreement.” Guz v.

Bechtel Nat’l Inc., 24 Cal. 4th 317, 349-50 (2000) (citations and

quotations omitted). “[T]he implied 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.” Carma Dev., Inc. v.

Marathon Dev. Cal., 2 Cal. 4th 342, 373 (1992) (quotations omitted). 

Additionally, “tort recovery for breach of the covenant is available

only in limited circumstances, generally involving a special

relationship between the contracting parties. . . .” Bionghi Metro.

Water Dist., 70 Cal. App. 4th 1358, 1370 (1999). “California courts

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have rejected parties’ arguments that the tort doctrine which has been

extended only to situations where there are unique fiduciary-like

relationships between the parties, should encompass normal commercial

banking transactions.” Connors v. Home Loan Corp., 2009 WL 1615989,

*6 (S.D. Cal. 2009) (internal brackets and quotations omitted). 

Here, Plaintiffs have not alleged facts showing that 

Defendants’ actions breached any “express covenants or promises of [a]

contract.” Carma Dev., Inc., 2 Cal. 4th at 373. Nor have Plaintiffs

alleged any relationship with Defendants other than the “normal

commercial” relationship between borrowers and a lender. Connors,

2009 WL 16159898, *6. Therefore, Plaintiffs have failed to state a

claim for breach of the implied covenant of good faith and fair

dealing under either contract or tort. Accordingly, Defendants’

motion to dismiss Plaintiffs’ fifth claim is GRANTED.

V. Conclusion

For the stated reasons, Defendants’ motion to dismiss 

Plaintiffs’ TILA and RESPA claims is granted with prejudice. 

Defendants’ motion to dismiss Plaintiffs’ FCRA, UCL, and breach of the

implied covenant of good faith and fair dealing claims is GRANTED with

leave to amend. If Plaintiffs elect to amend the claims dismissed

without prejudice, the amended complaint shall be filed within ten

(10) days of the date on which this Order is filed.

Dated: February 10, 2010

 

GARLAND E. BURRELL, JR.

United States District Judge

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