Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-01542/USCOURTS-azd-2_10-cv-01542-2/pdf.json

Nature of Suit Code: 430
Nature of Suit: Banks and Banking
Cause of Action: 15:1601 Truth in Lending

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Elvin G. Grundy, Jr. and Willie Ruth

Grundy, 

Plaintiffs, 

vs.

JPMorgan Chase Bank, N.A., et al.,

Defendants.

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No. CV10-1542 PHX DGC

ORDER

Defendant Quality Loan Service Corporation (“QLS”) moves to dismiss Plaintiffs’

amended complaint (Doc. 18), as does Defendant JPMorgan Chase Bank, N.A. (“Chase”)

(Doc. 20). Plaintiffs oppose both motions. Docs. 21, 23. QLS filed a reply (Doc. 25), and

Chase filed a notice of non-reply in light of Plaintiffs’ new bankruptcy proceeding (Doc. 24).

The parties have not requested oral argument. For the reasons that follow, the Court will

deny the QLS motion and grant in part and deny in part the Chase motion.

I. Background.

On June 25, 2010, pro se Plaintiffs Elvin and Willie Ruth Grundy filed their initial

complaint in Maricopa County Superior Court. Doc. 1-1. The complaint involves numerous

allegations against several defendants related to the foreclosure of Plaintiffs’ home and

preceding transactions Id. Defendant Chase removed the case to federal court on July 21,

2010. Doc. 1. As part of the last round of motion practice, Defendants QLS and Chase

(collectively “Defendants” for the purposes of this motion) informed the Court that Plaintiffs

had recently filed for bankruptcy. Docs. 24, 25. The Court ordered Plaintiffs to file a status

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report (Docs. 26, 29), and Plaintiffs complied on November 24, 2010 (Doc. 30). Plaintiffs

assert that they had not yet listed this case as property on Schedule B of their bankruptcy

petition, but that they will do so and will also claim an exemption on Schedule C. Doc. 30

at 5. Plaintiffs also indicate their intention to move forward with the suit with respect to

Defendants. Id. at 6. Since Plaintiffs’ report, no bankruptcy trustee has intervened in this

matter and no further motions, notices, or other documents have been filed. 

II. Discussion.

A. Legal Standards.

Under Rule 12(b)(6), the factual allegations in a complaint “‘are taken as true and

construed in the light mostfavorable to the nonmoving party.’” Cousins v. Lockyer, 568 F.3d

1063, 1067 (9th Cir. 2009) (citation omitted). Legal conclusions couched as factual

allegations are not given a presumption of truthfulness, and “conclusory allegations of law

and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto v.

F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). In deciding motions to dismiss, courts in the

Ninth Circuit construe liberally complaints by pro se plaintiffs. See, e.g., Weilburg v.

Shapiro, 488 F.3d 1202, 1205 (9th Cir. 2007) (“Pro se complaints are to be construed

liberally and ‘may be dismissed for failure to state a claim only where it appears beyond

doubt that the plaintiff can prove no set of facts in support of his claim which would entitle

him to relief.’” (quoting Franklin v. Murphy, 745 F.2d 1221, 1228, 1230 (9th Cir. 1984))).

“In alleging fraud or mistake, a party must state with particularity the circumstances

constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s

mind may be alleged generally.” Fed. R. Civ. P. 9(b). In Vess v. Ciba-Geigy Corp. USA, 317

F.3d 1097 (9th Cir. 2003), the Ninth Circuit noted that express allegations of fraud must be

pled with particularity under Rule 9(b) regardless of whether fraud is an essential element

of a claim. 317 F.3d at 1103-04. The Vess court also observed that fraud can be alleged

either expressly or by implication through allegations of facts that “necessarily” constitute

fraud. Id. If fraud is averred, the allegations must be “specific enough to give defendants

notice of the particular misconduct . . . so that they can defend against the charge and not just

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 A district court has the power to determine whether a proceeding before it comes within the

scope of the automatic bankruptcy stay. Lockyer v. Mirant Corp., 398 F.3d 1098, 1106 (9th

Cir. 2005). Although a pre-petition claim by a debtor against a defendant may be property

of the estate, a “chose in action,” a post-petition motion to dismiss by such defendant is not

“an act to . . . exercise control over property of the estate [under 11 U.S.C. § 362(a)(3)].”

See, e.g., Gordon v. Whitmore (In re Merrick), 175 B.R. 333, 336-38 (9th Cir. 1994).

Additionally, “[w]hile it is true that a successful defense to a lawsuit eliminates its alleged

value, this results in no loss to the estate.” Id. at 338.

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deny that they have done anything wrong.” Id. at 1106 (quoting Neubronner v. Milken, 6

F.3d 666, 672 (9th Cir. 2003)) (alteration in original). With this goal in mind, allegations of

fraud “must be accompanied by ‘the who, what, when, where, and how’ of the misconduct

charged.’” Id. (citing Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997)).

B. Motion to Dismiss by QLS.

Defendant QLS asserts that the claims against it should be dismissed because QLS

was joined to this suit solely as trustee and Plaintiffs’ complaint alleges no breach of trustee

obligations as to QLS. Doc. 18. QLS also requests attorneys’ fees. Id. Plaintiffs respond

that their First Amended Complaint alleges violations against QLS. Doc. 21 at 2. In its

reply, QLS disputes Plaintiffs’ assertion that an amended complaint has been filed, does not

address the substance of the amended complaint, and urges that this action should be stayed

in light of Plaintiffs’ bankruptcy petition. Doc. 25 at 2.

QLS’s argument is moot in light of the Court granting Plaintiffs leave to amend on

October 15, 2010 (Doc. 26). Plaintiffs’ amended complaint includes seven causes of action

against QLS, including a claim for violation of A.R.S. § 33-808(E) against QLS alone.

Doc. 27. The motion by QLS will be denied.1

C. Motion to Dismiss by Chase.

As part of its reply to its earlier motion to dismiss, Defendant Chase moves to dismiss

Plaintiffs’ amended complaint. Doc. 20. The Clerk has deemed the reply as both a reply and

a new motion (id.), and Plaintiffs filed a response (Doc. 23). On the date when its reply was

due, Chase filed a notice of non-reply on grounds that this action should be stayed in light

of bankruptcy proceedings. Doc. 24. Although it offered to file a reply if this Court deems

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such reply necessary, Chase does not assert that it is a debtor in a bankruptcy proceeding nor

does it meaningfully argue why the case should be stayed. See Doc. 24. The Court will rule

on Chase’s motion to dismiss based on the parties’ arguments in the motion and response.

As a threshold procedural matter, Chase argues that its previous motion to dismiss –

which this Court denied as moot subsequent to the filing of Chase’s motion at Doc. 20 –

should be applied to the amended complaint. Doc. 20 at 2. That motion was denied, and

Chase has not re-filed it. The Court will rule on Chase’s renewed motion to dismiss.

Chase argues the following in support of its motion to dismiss: (1) Plaintiffs’

complaint violates Rule 8 because it alleges “a plethora of irrelevant information”; (2) Chase

should not be a defendant because “[i]t was not the original lender, trustee, or beneficiary”

and “[i]t is not the current trustee or beneficiary”; (3) Plaintiffs fail to plead with particularity

the fraud allegations in Counts I, II, and IV as required by Rule 9(b); (4) Count I fails

because Plaintiffs have not established a private right of action under A.R.S. § 13-2320;

(5) Count I fails because Plaintiffs have not complied with service requirements under A.R.S.

§ 13-2314.04(H), a jurisdictional requisite; (6) Count III fails because it does not state a

claim against Chase to the extent that the claim alleges violations of the covenant of good

faith and fair dealing by “refusing to modify, perform a workout arrangement, or extend the

note” (quoting from Amended Complaint ¶ 168); (7) although Count V was not asserted

against Chase, the claim fails against Bear Stearns or EMC because Plaintiffs failed to allege

a fiduciary relationship; (8) Counts VI, VIII, IX, and X should be deemed abandoned because

Plaintiffs do not defend these theories; and (9) Count VII claims are barred by the statute of

limitations and Plaintiffs fail to qualify for equitable tolling. Doc. 20. The Court will refer

to the arguments by these numbers.

1. Argument 1.

Chase argues that Plaintiffs’ complaint violates Rule 8 because it alleges “a plethora

of irrelevant information.” Chase has not moved under Rule 12(f) to strike the portions of

the amended complaint that it finds irrelevant, but instead argues that the entire complaint

should be dismissed. Chase cites no legal support for the position that an entire complaint

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should be dismissed when it contains irrelevant information, and the Court is aware of none.

2. Argument 2.

Chase urges that it should not be a defendant in this case because “[i]t was not the

original lender, trustee, or beneficiary” and “[i]t is not the current trustee or beneficiary.”

Doc. 20 at 3. Chase’s argument for blanket dismissal is rooted in assertions of fact – that

there is no direct relationship between Plaintiffs and Chase, and that Chase had no

knowledge of any misstatements other defendants may have made to Plaintiffs. Id. at 4. For

purposes ofRule 12(b)(6), however, Plaintiffs’ factual allegations must be taken as true. The

Court therefore will reject this argument.

3. Argument 3.

Chase asserts that Plaintiffs fail to plead with particularity the fraud allegations in

Counts I, II, and IV as required by Rule 9(b). In their defense, Plaintiffs point to paragraphs

55-65 and 103-05 as providing a “detailed account of the fraud committed by AAMES and

EMC and BEAR STEARNS.” Doc. 23 at 5. 

Paragraph 65 alleges that AAMES agents claimed the re-fi loan was in Plaintiffs’ best

interest and represented that the “total house payments made would be lower.” Doc. 27 ¶ 65.

Paragraph 103 alleges that Bear Stearns and EMC agents represented that a new loan can be

“originated without the adjustable rate mortgage.” Id. ¶ 103. Paragraph 105 alleges that a

Bear Stearns agent “represented that by executing the new loan, [Plaintiffs] would be able

to [lower] their mortgage payments and stave off foreclosure.” Id. ¶ 105. 

The Court, however, is not called upon to decide whether the claims against AAMES,

Bear Stearns, or EMC have been pled with particularity – only the claims against Chase. The

paragraphs discussed above make no reference to Chase. The Court finds that Plaintiffs have

failed to plead fraud with particularity against Chase, and will dismiss Counts II and IV as

to Chase.

With regard to Count I, Plaintiffs argue that Chase would be liable for fraudulent

conduct by Bear Stearns and EMC under A.R.S. § 13-2320(A)(3). Doc. 23 at 6. Assuming

without deciding that Plaintiffs’ characterization of the statute is correct, this does not change

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the fact that Plaintiffs failed to plead Chase’s participation in the alleged fraud with

particularity. Count I does not merely allege that Chase was part of a general market

racketeering scheme; it asserts that Chase “engaged in a systematic pattern of . . . fraud . . .

with the intent to cause economic injury to [Plaintiffs].” Doc. 27 ¶ 142. Because Plaintiffs

fail to plead this fraud with particularity, the Court will dismiss Count I as to Chase.

4. Argument 4.

Chase argues in passing that Count I fails because Plaintiffs have not established a

private right of action under A.R.S. § 13-2320. Because Count I has been dismissed as to

Chase on other grounds above, the Court need not reach this issue.

5. Argument 5.

Chase asserts that Count I fails because Plaintiffs have not complied with service

requirements on the Arizona Attorney General under A.R.S. § 13-2314.04(H), a

jurisdictional requisite. Because Count I has been dismissed as to Chase on other grounds,

the Court need not reach this issue.

6. Argument 6.

Chase urges that Count III fails to state a claim that Chase violated the covenant of

good faith and fair dealing by “refusing to modify, perform a workout arrangement, or extend

the note.” Doc. 20 at 5 (quoting from Amended Complaint ¶ 168). Plaintiffs respond that

Chase was subject to “common law contract principles requiring good faith and fair dealing

with Plaintiffs” after Chase assumed control of Bear Stearns and EMC. Doc. 23 at 9-10.

Under Arizona law, the implied covenant of good faith and fair dealing “arises by

virtue of a contractual relationship.” Rawlings v. Apodaca, 726 P.2d 565, 569 (Ariz. 1986).

The covenant precludes each party to a contract from impairing “the right of the other to

receive the benefits which flow from their agreement or contractual relationship.” Id.

Plaintiffs have not alleged having a contract with Chase. The Court will dismiss this count

as to Chase.

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7. Argument 7.

Chase argues that Count V fails because Plaintiffs failed to allege a fiduciary

relationship. The claim at issue here was not asserted against Chase, as Chase readily

concedes. Doc. 20 at 6. Moreover, Chase has not shown that it has standing to argue on

behalf of Bear Stearns or EMC. The Court therefore rejects this argument for lack of

standing.

8. Argument 8.

Chase asserts that Counts VI, VIII, IX, and X should be deemed abandoned because

Plaintiffs do not defend these theories. Plaintiffs filed an amended complaint asserting the

claims at issue. Doc. 27. The Court cannot conclude that Plaintiffs abandoned these claims

by failing to respond to moot motions.

9. Argument 9.

Finally, Chase urges that the Count VII claims are barred by the statute of limitations

and Plaintiffs fail to qualify for equitable tolling. Plaintiffs respond that the application of

equitable tolling turns on whether “a reasonable plaintiff would . . . have known of the

existence of a possible claim within the limitations period.” Doc. 23 at 11 (quoting Johnson

v. Henderson, 314 F.3d 409, 414 (9th Cir. 2002)). Plaintiffs assert that they relied on the

representations from Bear Stearns that Plaintiffs’ loan would be easy to modify, and that

when it came time to modify the loan these promises were largely ignored. Plaintiffs argue

that they had notice of misrepresentations only once the promises failed to materialize.

Doc. 23 at 11. Chase does not reply, and the Court finds Plaintiffs’ fact-intensive argument

colorable. Accordingly, the Court will not dismiss Count VII as to Chase at this stage of the

litigation.

III. Further Status Report Required on Trustee Position.

Although Plaintiffs have filed a status report with the Court regarding their ongoing

bankruptcy case (Doc. 30), they do not address the position of the bankruptcy trustee on the

claims being asserted in this case. Because those claims are property of the Plaintiffs’ estate,

they presumably are under the control of the bankruptcy trustee. Plaintiffs shall confer with

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the trustee concerning the claims and file a status report with this Court (1) confirming that

they have conferred with the trustee; (2) stating the trustee’s position with respect to this

lawsuit – whether the trustee intends to intervene and pursue the lawsuit, whether Plaintiffs

are authorized to pursue it on their own, and whether Plaintiffs must obtain permission from

the bankruptcy court to pursue this case on their own; and (3) stating what actions Plaintiffs

intend to take with respect to this case in light of their communications with the trustee. The

status report shall be filed by February 18, 2011.

IT IS ORDERED:

1. Defendant QLS’s motion to dismiss (Doc. 18) is denied.

2. Defendant Chase’s motion to dismiss (Doc. 20) is granted in part and denied

in part as stated above.

3. Plaintiffs shall file the status report required in this order by

February 18, 2011.

DATED this 24th day of January, 2011.

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