Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_09-cv-02347/USCOURTS-caed-2_09-cv-02347-1/pdf.json

Nature of Suit Code: 140
Nature of Suit: Negotiable Instruments
Cause of Action: 15:1601 Truth in Lending

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28 This matter is deemed to be 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

ADAM LINGAD, )

)

Plaintiff, ) 2:09-cv-02347

)

v. ) ORDER GRANTING DEFENDANTS

) MORTGAGEIT AND MERS’ MOTIONS

INDYMAC FEDERAL BANK; MORTGAGEIT, ) TO DISMISS*

INC.; MORTGAGE ELECTRONIC )

REGISTRATION SYSTEMS, INC.; OPTIMUM) 

LENDING GROUP, INC.; FRANK HOI )

CHEUNG WONG; ANTHONY PADUA; DOES ) 

1-20 inclusive, )

)

Defendants. )

)

Defendants MortgageIT, Inc. (“MortgageIT”) and Mortgage

Electronic Registration Systems, Inc. (“MERS”) have each filed motions

under Federal Rule of Civil Procedure 12(b)(6) to dismiss the claims

brought against them in Plaintiff’s complaint. (Docket Nos. 7, 15.) 

MortgageIT also filed a motion under Federal Rule of Civil Procedure

12(f) to strike portions of Plaintiff’s complaint. (Docket No. 11.) 

For the reasons stated below, MortgageIT and MERS’ motions to dismiss

are GRANTED and MortgageIT’s motion to strike is DENIED as MOOT.

I. LEGAL STANDARDS

A motion under Federal Rule of Civil Procedure 12(b)(6)

(“Rule 12(b)(6)”) “challenges a complaint’s compliance with . . .

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pleading requirements.” Champlaie v. BAC Home Loans Servicing, LP,

No. S-09-1316 LKK/DAD, 2009 WL 3429622, at *1 (E.D. Cal. Oct. 22,

2009). A pleading must contain “a short and plain statement of the

claim showing that the pleader is entitled to relief . . . .” Fed. R.

Civ. P. 8(a)(2). The complaint must “give the defendant fair notice

of what the [plaintiff’s] claim is and the grounds upon which relief

rests . . . .” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555

(2007). Further, “[a] pleading that offers labels and conclusions or

a formulaic recitation of the elements of a cause of action will not

do. Nor does a complaint suffice if it tenders naked assertions

devoid of further factual enhancement.” Ashcroft v. Iqbal, 129 S. Ct.

1937, 1949 (2009). 

To avoid dismissal, the plaintiff must allege “only enough

facts to state a claim to relief that is plausible on its face.” 

Twombly, 550 U.S. at 547. “A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw the

reasonable inference that the defendant is liable for the misconduct

alleged.” Iqbal, 129 S. Ct. at 1949. Plausibility, however, requires

more than “a sheer possibility that a defendant has acted unlawfully.” 

Id. “When 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. (quotations and

citation omitted).

In evaluating a motion under Rule 12(b)(6), the material

allegations of the complaint are accepted as true and all reasonable

inferences are drawn in favor of the plaintiff. See al-Kidd v.

Ashcroft, 580 F.3d 949, 956 (9th Cir. 2009). However, neither

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conclusory statements nor legal conclusions are entitled to a

presumption of truth. See Iqbal, 129 S. Ct. at 1949-50.

Plaintiff’s opposition includes his requests that judicial

notice be taken of three documents: (1) a copy of the Deed of Trust

securing his mortgage loan, (2) the Assignment of the Deed of Trust

and (3) a law review article entitled “Foreclosure, Subprime Mortgage

Lending and the Mortgage Electronic Registration System.” MERS

objects to judicial notice being taken of the law review article,

arguing that it is not a fact for which judicial notice is proper.

While, “as a general rule, a district court may not consider

materials not originally included in the pleadings in deciding a Rule

12 motion . . . it may take judicial notice of matters of public

record and may consider them without converting a Rule 12 motion into

one for summary judgment.” U.S. v. 14.02 Acres of Land More or Less

in Fresno County, 547 F.3d 943, 955 (9th Cir. 2008)(quotations and

citations omitted). However, to take judicial notice of a fact, it

must be either “generally known within the territorial jurisdiction of

the trial court” or “capable of accurate and ready determination by

resort to sources whose accuracy cannot be reasonably be questioned.” 

Fed. R. Evid. 201(b). The Deed of Trust and Assignment of Deed of

Trust are publicly recorded documents of which judicial notice is

proper. However, Plaintiff’s third exhibit - a law review article -

will not be judicially noticed as it is not a “fact” for which

judicial notice is proper. See Champlaie, 2009 WL 3429622, at *4

(denying request for judicial notice of same article).

II. FACTUAL AND PROCEDURAL BACKGROUND

On or about June 28, 2006, Plaintiff obtained a loan from

MortgageIT to purchase his home, located at 11820 Slate Falls Way in

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Rancho Cordova, California. (Compl. ¶¶ 7, 31.) The loan was

memorialized in a Promissory Note secured by a Deed of Trust on the

property. (Id. ¶ 31.) The Deed of Trust identifies MortgageIT as the

lender and MERS as the beneficiary and nominee for the lender and the

lender’s successors and assigns. (Id. ¶¶ 31, 32; Request for Judicial

Notice, Ex. 1.) 

Plaintiff’s claims stem from his allegations that Defendants

Padua and Wong, a loan officer and real estate broker of Defendant

Optimum Lending, channeled him into his allegedly unaffordable

mortgage loan. (Id. ¶¶ 13, 14, 23-28.) Specifically, Plaintiff

alleges that Padua told him that he could get him the “best deal” and

the “best interest rates” and that if the loan ever became

unaffordable, he would be able to refinance. (Id. ¶¶ 24, 28.)

Plaintiff also alleges Padua exaggerated Plaintiff’s earnings in order

to obtain Plaintiff’s loan. (Id. ¶ 26.)

On August 21, 2009, Plaintiff filed a complaint in this

federal district court, alleging nine claims under federal and state

law against six Defendants. 

III. DISCUSSION

A. Truth In Lending Act

1. Plaintiff’s Rescission Claim

MortgageIT argues Plaintiff’s Truth In Lending Act (“TILA”)

claim for rescission of his mortgage loan should be dismissed since

TILA does not apply to “purchase-money” loans. (MortgageIT Motion to

Dismiss (“MortgageIT MTD”) 3:7-26.) Plaintiff “acknowledges that his

claim for rescission is inapplicable as to Defendant MortgageIT.” 

(Opp’n to MortgageIT MTD 7 n.3.) Since residential mortgage

transactions are excluded from the right to rescission under TILA,

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Plaintiff’s claim for rescission is dismissed with prejudice. See 15

U.S.C. § 1635(e)(1)(providing that the right of rescission does not

apply to a “residential mortgage transaction” in which a mortgage or

deed of trust is created or retained against the borrower’s dwelling

to finance the acquisition of the dwelling).

2. Plaintiff’s Claim for Damages

MortgageIT also argues Plaintiff’s TILA claim for damages

should be dismissed because his claim is barred by the one-year

statute of limitations. (MortgageIT MTD 5:16-6:5.) MortgageIT

further argues Plaintiff has failed to plead facts that support the

application of equitable tolling. (MortgageIT MTD 6:6-18.) Plaintiff

responds, arguing he has plead sufficient facts to show that the

statute of limitations period should be equitably tolled. 

An action under TILA for actual or statutory damages must be

brought “within one year from the date of the occurrence of the

violation.” 15 U.S.C. § 1640(e). The limitation period starts to run

“at the consummation of the [loan] transaction.” King v. California,

784 F.2d 910, 915 (9th Cir. 1986). However, the doctrine of equitable

tolling may “suspend the limitations period” “in certain

circumstances,” such as when the borrower did not have reasonable

opportunity to discover the alleged fraud or nondisclosures that form

the basis of the plaintiff’s TILA claim. Id. “Because the

applicability of [equitable tolling] often depends upon matters

outside the pleadings, it is not generally amendable to resolution on

a Rule 12(b)(6) motion.” Supermail Cargo, Inc. v. U.S., 68 F.3d 1204,

1206 (9th Cir. 1995)(quotations and citation omitted). Nonetheless,

when a plaintiff fails to allege any facts demonstrating that the TILA

violations alleged could not have been discovered by due diligence

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during the one-year statutory period, equitable tolling should not be

applied and dismissal at the pleading stage is appropriate. See Meyer

v. Ameriquest Mortg. Co., 342 F.3d 899, 902 (9th Cir. 2003)(dismissing

TILA claim, despite request for equitable tolling, because plaintiff

was in possession of all loan documents and did not allege any

concealment or other conduct that would have prevented discovery of

the alleged TILA violations during the one year limitations period). 

Plaintiff alleges MortgageIT violated TILA by: “(a) failing

to provide [the] required disclosures prior to the consummation of the

transaction; (b) failing to make required disclosures clearly and

conspicuously in writing; (c) failing to timely deliver to Plaintiff

notices required by TILA;(d) placing terms prohibited by TILA into the

transaction; and (e) failing to disclose all finance charge details

and the annual percentage rate based upon properly calculated and

disclosed finance charges and amounts financed.” (Compl. ¶ 58.) 

Further, Plaintiff alleges that “the facts surrounding his loan

transaction were purposefully hidden [from him] to prevent [him] from

discovering the true nature of the transaction and the documents

involved therein.” (Id. ¶ 30.) Lastly, Plaintiff alleges these TILA

violations were “discovered within the past year, such that any

applicable statute of limitations . . . should be extended pursuant to

the equitable tolling doctrine . . . .” (Id. ¶ 48.) 

Plaintiff’s allegations are insufficient to invoke the

doctrine of equitable tolling. The TILA violations complained of

occurred at or prior to the closing of Plaintiff’s loan transaction in

June 2006, over three years prior to the commencement of this action. 

Plaintiff fails to explain in his complaint why he was prevented from

discovering MortgageIT’s alleged TILA violations within the one year

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statutory period. See Blanco v. Am. Home Mortg. Servicing, Inc., No.

CIV 2:09-578 WBS DAD, 2009 WL 4674904, at *3 (E.D. Cal. Dec. 4,

2009)(finding equitable tolling inapplicable since plaintiff failed to

offer facts demonstrating how the facts surrounding plaintiff's

mortgage were concealed, and did not explain “what prevented her from

later reviewing the loan documents, which she admittedly was given at

closing . . .”). Plaintiff’s allegation that “MortgageIT concealed

the facts surrounding his mortgage” is conclusory and does not justify

application of equitable tolling. Since Plaintiff has not alleged

sufficient facts to invoke equitable tolling and suspend the statute

of limitations, his TILA claim for damages against MortgageIT is

dismissed. 

B. California’s Rosenthal Act

Both MortgageIT and MERS move to dismiss Plaintiff’s

Rosenthal Act claims. MortgageIT argues Plaintiff failed to plead

this claim with sufficient factual detail. (MortgageIT MTD 6:21-

7:21.) MERS similarly argues “Plaintiff’s allegations are conclusory

and fail to put MERS on fair notice of its alleged wrongdoing . . . .” 

(MERS MTD 4:7-8.) Plaintiff rejoins that he has satisfied the

requirements of Rule 8. (Opp’n to MortgageIT MTD 9:22-23.)

The Rosenthal Act serves to “prohibit debt collectors from

engaging in unfair or deceptive acts or practices in the collection of

consumer debts and to require debtors to act fairly in entering into

and honoring such debts.” Arikat v. JP Morgan Chase & Co., 430 F.

Supp. 2d 1013, 1026 (N.D. Cal. 2006)(citing Cal. Civ. Code §

1788.1)(emphasis omitted). However, the Act only governs the conduct

of a “debt collector,” which under the statute is defined as “any

person who, in the ordinary course of business, regularly, and on

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(continued...)

8

behalf of himself or herself . . . engages in debt collection.” Cal

Civ. Code. § 1788.2. 

Plaintiff alleges “Defendants are debt collectors” and their

“actions constitute a violation of the Rosenthal Act in that they

threatened to take actions not permitted by law, including but not

limited to . . .: collecting on a debt not owed to [them], making

false reports to credit reporting agencies, falsely stating the amount

of a debt, increasing the amount of a debt by including amounts that

are not permitted by law or contract, and using unfair or

unconscionable means in an attempt to collect a debt.” (Compl. ¶ 68.) 

Plaintiff’s allegations, however, “are too vague to give

rise to any inference that a specific defendant has violated” the

Rosenthal Act. Arikat, 430 F. Supp. 2d at 1027 (dismissing as too

vague, Rosenthal Act claim that alleged all violations against all

defendants without specifying each defendant’s individual conduct). 

Plaintiff’s complaint is also deficient since it fails to allege which

sections of the Rosenthal Act MortgageIT and MERS, respectively,

violated. See Blanco, 2009 WL 4674904, at *4 (dismissing claim under

Rosenthal Act, in part, for failing to identify the provisions of the

statute allegedly violated). Therefore, Plaintiff’s Rosenthal Act

claims against MortgageIT and MERS is dismissed.

C. Negligence

MorgageIT and MERS also argue that Plaintiff’s negligence

claims should be dismissed since Plaintiff has failed to plead any

facts establishing that either Defendant owed Plaintiff a duty of care

which could give rise to a negligence claim. (MortgageIT MTD 8:18- 1

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(...continued) 1

the two year limitations period imposed by California Civil Code

Section 339. However, since Plaintiff’s negligence claim against

MortgageIT is dismissed on other grounds, this argument is not reached.

9

9:21; MERS 5:4-18.) Plaintiff argues “MortgageIT owed a general duty

of care to Plaintiff to perform its lender function in such a manner

as to not cause Plaintiff harm” and “MERS owed Plaintiff a duty to

perform its administrative function of recording, maintaining and

transferring documents as it relates to Plaintiff’s loans in a manner

as not to cause Plaintiff harm.” (Opp’n to MortageIT MTD 12:14-23;

Opp’n to MERS MTD 14:17-20.)

 “The elements of a cause of action for negligence are: the

defendant had a duty to use due care, . . . he or she breached that

duty, and . . . the breach was the proximate or legal cause of the

[plaintiff’s] resulting injury.” Vasquez v. Residential Invs., Inc.,

118 Cal. App. 4th 269, 278 (2004). “[T]he threshold element of a

cause of action for negligence is the existence of a duty to use due

care toward an interest of another . . . . Whether this essential

prerequisite has been satisfied in a particular case is a question of

law.” Glenn K. Jackson, Inc. v. Roe, 273 F.3d 1198, 1196-97 (9th Cir.

2001)(applying California law)(quotations and citations omitted). 

“Under California law, a lender does not owe a borrower or

third party any duties beyond those expressed in the loan agreement,

excepting those imposed due to special circumstances . . . .” 

Resolution Trust Corp. v. BVS Development, Inc., 42 F.3d 1206, 1214

(9th Cir. 1994)(citing Nymark v. Heart Fed. Sav. & Loan Ass’n, 231

Cal. App. 3d 1089, 1096 (1991)). “Special circumstances” giving rise

to a duty of care may exist when the “lender actively participates in

the financed enterprise beyond the domain of the usual money lender.” 

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Nymark v. Heart Fed. Savings & Loan Ass’n, 231 Cal. App. 3d 1089, 1096

(1991). This rule also applies to loan servicers. Azzini v.

Countrywide Home Loans, No. 09-cv-787 DMS (CAB), 2009 WL 5218042, at

*2 (S.D. Cal. Dec. 29, 2009). However, a lender may be held

vicariously liable for negligence “when the lender actively

participates in the negotiations of a loan, including through a broker

as the lender’s agent.” Mangindin v. Washington Mut. Bank, 637 F.

Supp. 2d 700, 710 (N.D. Cal. 2009)(quotations and citations omitted);

see also Wong v. Am. Servicing Co., No. 2:09-cv-01506, 2009 WL 5113516

FCD/DAD, at *6 (E.D. Cal. Dec. 18, 2009)(“A lender may also be

secondarily liable through the actions of a mortgage broker, who has a

fiduciary duty to its borrower-client, if there is an agency

relationship between the lender and the broker.”)

Plaintiff alleges MortgageIT was the lender for his loan and

MERS was the beneficiary and nominee for the lender and the lender’s

successor and assigns. (Compl. ¶¶ 31, 32.) Plaintiff further alleges

MortgageIT and MERS “owed a duty to [him] to perform acts in such a

manner as to not cause [him] harm” and that they “breached [this duty]

. . . when they failed to maintain the original Mortgage Note, failed

to properly create original documents, failed to make the required

disclosures to [him,] . . . took payments to which they were not

entitled, charged fees they were not entitled to charge, and made or

otherwise authorized negative reporting of [his] creditworthiness to

various credit bureaus . . . .” (Id. ¶¶ 75-76.) Plaintiff also

alleges “MortgageIT employed brokers and loan officers who were paid

commissions based on the volume of loans they sold to consumers,

including Plaintiff’s loan . . . [and] MortgageIT’s loan officers

received a greater commission or bonus for placing borrowers in loans

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with relatively high yield spread premiums. As such, borrowers,

Plaintiff included, were steered and encouraged into loans with terms

unfavorable to them, or loans which the borrowers, Plaintiff included,

were not qualified to obtain.” (Id. ¶ 35.)

However, Plaintiff’s negligence claim against MERS fails

because he has not alleged any conduct by MERS that was outside the

scope of its conventional role as a loan servicer. Plaintiff,

therefore, has not pled facts demonstrating that MERS owed him a duty

of care. See Azzini, 2009 WL 5218042, at *2 (dismissing negligence

claim against loan servicer). Accordingly, Plaintiff’s negligence

claim against MERS is dismissed.

 Plaintiff’s allegations against MortgageIT are also

insufficient to establish that MortgageIt owed him a duty of care.

Plaintiff argues that MortgageIT exceed its role as a lender by

“knowingly participat[ing] with broker Defendants to place Plaintiff

into [a] toxic loan[] with predatory terms . . . .” (Opp’n to

MortgageIT MTD 12:25-28.) However, Plaintiff has not plead facts

demonstrating that an agency relationship existed between MortgageIT

and the broker Defendants who sold Plaintiff his loan. Plaintiff

alleges that Defendants Wong and Padua sold him his loan and that they

were a real estate broker and loan officer for Defendant Optimum

Lending. (Compl. ¶¶ 12-14.) Plaintiff, therefore, has not alleged

the existence of an agency relationship between Wong and Padua and

MortgageIT. Accordingly, Plaintiff has not demonstrated that

MortgageIT owed him a duty of care and his negligence claim against

MortgageIT is dismissed.

Plaintiff counters his allegations state a claim against

MortgageIT for civil conspiracy to commit negligence. Specifically,

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Plaintiff contends “Defendant MortgageIT engaged in a civil conspiracy

with broker and loan officer Defendants to place borrowers, Plaintiff

included, in loans with relatively high yield spread premiums . . . .” 

(Opp’n to MortgageIT MTD 12:23-25.)

“The elements of an action for civil conspiracy are (1)

formation and operation of the conspiracy; and (2) damage resulting to

plaintiff (3) from a wrongful act done in furtherance of a common

design.” Rusheen v. Cohen, 37 Cal. 4th 1048, 1062 (2006). “Civil

conspiracy allows imposition of vicarious liability on a party who

owes a tort duty, but who did not personally breach that duty.” See

Gonzalez v. First Franklin Loan Services, No. 1:09-CV-00941 AWI-GSA,

2010 WL 144862, at * 11 (E.D. Cal. Jan. 11, 2010)(dismissing claim for

civil conspiracy to commit negligence). However, even when these

elements are established, a conspirator cannot be liable unless he

personally owed a duty of care to Plaintiff that was breached. See

Applied Equip. Corp. V. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 512

(1994). Since Plaintiff has not pled facts demonstrating that

MortgageIT owed him a duty of care, Plaintiff has not alleged a viable

civil conspiracy claim against MortgageIT. Therefore, Plaintiff has

failed to state a claim against MortgageIT for civil conspiracy to

commit negligence.

D. Real Estate Settlement Procedures Act

MortgageIT also argues Plaintiff’s Real Estate Settlement

Procedures Act (“RESPA”) claims should be dismissed because there is

no private cause of action for violation of RESPA’s disclosure

requirements and, further, MortgageIT is not a “loan servicer” that

may be held liable under RESPA. (MortgageIT MTD 10:9-11-10.) 

Plaintiff rejoins that under RESPA, MortgageIT was required to make

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certain disclosures to Plaintiff at the time his mortgage loan closed. 

(Opp’n to MortgageIT MTD 6-12.) 

RESPA requires that lenders provide borrowers with a

standard disclosure form at or before the “settlement” of a mortgage

loan transaction. 12 U.S.C. § 2603(b). The disclosure form is

required to “conspicuously and clearly itemize all charges imposed

upon the borrower and . . . the seller . . . in connection with the

settlement . . . .” 12 U.S.C. § 2603(a). RESPA also requires that

lenders and loan servicers make certain disclosures and communications

to the borrower regarding the servicing of a mortgage loan. See 12

U.S.C. § 2605. 

Plaintiff’s complaint alleges “MortgageIT violated RESPA at

the time of closing of the [l]oan . . . by failing to correctly and

accurately comply with [RESPA’s] disclosure requirements.” (Compl. ¶

82.) However, there is no private right of action for violations of

Section 2603's disclosure requirements. Bloom v. Martin, 865 F. Supp.

1377, 1384 (N.D. Cal. 1994)(finding that Congress did not intend to

create a private right of action for violations of Section 2603),

aff’d, 77 F.3d 318 (1996). Further, the disclosure provisions of

RESPA that do confer a private right of action do not pertain to

disclosures at a loan’s closing. Lopez v. Wachovia Mort., 2:09-CV01510-JAM-DAD, 2009 WL 4505919, at *3 (Nov. 20, 2009). Therefore,

Plaintiff’s RESPA claim brought under Section 2603 against MortgageIT

is dismissed with prejudice.

Plaintiff also alleges “Defendants have engaged in a pattern

or practice of non-compliance with the requirements of the mortgage

servicer provisions of RESPA as set forth in 12 U.S.C. § 2605.” 

(Compl. ¶ 84.) However, Plaintiff has not alleged that MortgageIT is

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either a lender or a loan servicer to whom the requirements of section

2605 apply. Plaintiff merely alleges that he “is not certain at this

time exactly which of Defendants was actually the servicer of [his]

[l]oan at any given time.” (Id. ¶ 81.) Without alleging that

MortgageIT was a lender or loan servicer for the purposes of Section

2605, Plaintiff’s claim cannot survive MortgageIT’s dismissal motion. 

Plaintiff’s opposition raises the novel argument that “it

remains unclear whether . . . Defendant MortgageIT . . . received

‘kickbacks’ or referral fees disproportional to the work performed,

which is prohibited under 12 U.S.C. § 2607(a).” (Opp’n to MortgageIT

MTD 1416-23.) Plaintiff’s complaint, however, makes no mention of

that provision nor alleges any facts suggesting that its requirements

were violated. A motion to dismiss “addresses the present state of

the pleadings, not what an amended complaint might state.” Champlaie,

2009 WL 3429622, at *7. Therefore, these new allegations will not be

considered and Plaintiff’s RESPA claim against MorgtgageIT is

dismissed.

E. Breach of Fiduciary Duty

MortgageIt further argues Plaintiff’s claim for breach of

fiduciary duty should be dismissed because a lender does not owe a

fiduciary duty to a borrower under California law. (MortgageIT MTD

11:25-12:17.) Plaintiff counters that MortgageIT owed him a fiduciary

duty because it “directly ordered, authorized or participated in [the]

broker Defendants tortious conduct when it knowingly and intentionally

approved a loan to Plaintiff . . . [,and] interfered with broker

Defendants’ fiduciary obligations by offering them financial

incentives to violate Plaintiff’s trust.” (Opp’n to MorgageIT’s MTD

16:2-7.)

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To state a claim for breach of fiduciary duty, a plaintiff

must show: (1) the existence of a fiduciary relationship; (2) the

breach of that relationship; and (3) damage proximately caused by the

breach. Roberts v. Lomanto, 112 Cal. App. 4th 1553, 1562 (2003). 

However, “[a]bsent special circumstances . . . a loan transaction is

[an] at arms-length [transaction] and there is no fiduciary

relationship between the borrower and lender.” Oaks Mgmt. Corp. v.

Superior Court, 145 Cal. App. 4th 453, 466 (2006). “A commercial

lender is entitled to pursue its economic interest in a loan

transaction. This right is inconsistent with the obligations of a

fiduciary, which require that the fiduciary knowingly agree to

subordinate its interests to act on behalf of and for the benefit of

another.” Gonzalez, 2010 WL 144862, at *13. A lender, however, may

be held vicariously liable for breach of fiduciary duty when a broker,

who is an agent of the lender, breaches a fiduciary duty owed to the

borrower. Id. 

Plaintiff alleges “Defendants, by and through their agents,

owed [him] a fiduciary duty . . . to act primarily for his benefit, to

act with proper skill and diligence, and not to make a personal profit

from the agency . . . .” (Compl. ¶ 91.) Plaintiff also alleges that

“MortgageIT directly ordered, authorized or participated in Defendants

Optimum [Lending] and Wong’s tortious conduct.” (Id. ¶ 88.) 

Plaintiff further alleges “MortgageIT . . . interfered with Defendants

Wong and Padua’s fiduciary obligations by offering Wong and Padua

incentives to breach their fiduciary duty by means of creating and

participating in a scheme that created an illusion to consumers that

they are being informed of all of the material facts, when in fact

they are not.” (Id. ¶ 94.)

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Plaintiff’s breach of fiduciary duty claim against

MortgageIt fails for the same reason his negligence claim fails. 

Plaintiff argues MortgageIt owed him a fiduciary duty resulting from

its influence over its brokers. However, Plaintiff has not alleged

that an agency relationship existed between MortgageIT and Defendants

Padua and Wong, who sold Plaintiff his loan. Plaintiff, therefore,

has not pled facts demonstrating that MortgageIT owed Plaintiff a

fiduciary duty which could give rise to a claim for breach of that

duty. Accordingly, Plaintiff’s breach of fiduciary duty claim against

MortgageIT is dismissed. 

F. Fraud

Both MortgageIT and MERS argue Plaintiff’s fraud claims

should be dismissed because Plaintiff’s complaint fails to comply with

the heightened pleading standard required by Federal Rule of Civil

Procedure 9(b)(“Rule 9(b)”). Plaintiff argues he has satisfied Rule

9(b)’s requirements.

Under California law, the elements of a fraud claim are: (1)

misrepresentation (including, false representation, concealment, or

nondisclosure); (2) knowledge of falsity; (3) intent to induce

reliance; (4) justifiable reliance; and (5) resulting damage. Lazar

v. Superior Court, 12 Cal.4th 631, 638 (1996). A claim for fraud in

federal court, however, must satisfy Rule 9(b)’s particularity

requirements. See Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1103 (9th

Cir. 2003). “A pleading is sufficient under Rule 9(b) if it

identifies the circumstances constituting fraud so that the defendant

can prepare an adequate answer from the allegations. The complaint

must specify such facts as the times, dates, places, benefits

received, and other details of the alleged fraudulent activity.” 

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Neubronner v. Milken, 6 F.3d 666, 671-72 (9th Cir. 1993)(quotations

and citations omitted).

Plaintiff alleges in his fraud claim that Defendants Padua

and Wong made false representations to Plaintiff, at the inception of

his loan transaction regarding interest rates, financing options, the

availability of refinancing and Plaintiff’s qualifications for the

loan. (Compl. ¶ 98.) Plaintiff also alleges “MortgageIT regularly

trained, directed, authorized and/or participated with mortgage

brokers to implement [a] scheme, giving them monetary incentives to

violate the borrowers’ trust”; and “MERS misrepresented to Plaintiff

on the Deed of Trust that it is a qualified beneficiary with the

ability to assign or transfer the Deed of Trust and/or the Note and/or

substitute trustees under the Deed of Trust” and “misrepresented that

it followed the applicable legal requirements to transfer the Note and

Deed of Trust to subsequent beneficiaries.” (Compl. ¶¶ 99, 101.)

Plaintiff’s fraud claims clearly fail to satisfy the

requirements of Rule 9(b). Although Plaintiff alleges Defendants Wong

and Padua made false representations at the inception of Plaintiff’s

loan transaction, Plaintiff fails to adequately allege how the moving

Defendants are responsible for those alleged misrepresentations. 

Further, Plaintiff’s allegations against MERS do not include the time,

date, place, or benefits resulting from MERS allegedly fraudulent

activity. Since Plaintiff’s fraud claims against MortgageIT and MERS

fail to satisfy Rule 9(b), they are dismissed.

G. Breach of Contract

MortgageIT also argues Plaintiff’s claim for breach of

contract should be dismissed since Plaintiff has not alleged that

MortgageIt made a promise to provide Plaintiff with an affordable loan

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or to refinance his loan. (MortgageIT MTD 16:23-17:10.) Plaintiff

argues MortgageIT is a party to the loan agreement and under the terms

of the agreement, Plaintiff was promised an affordable loan with the

“best interest rates on the market” and the ability to refinance his

loan when it became unaffordable. (Opp’n to MortgageIT MTD 20.) 

To state a claim for breach of contract under California

law, a plaintiff “must plead and prove (1) a contract, (2) plaintiff’s

performance or excuse for non-performance, (3) defendant’s breach, and

(4) damages to Plaintiffs.” Troyk v. Farmers Group, Inc., 171 Cal.

App. 4th 1305, 1352 (2009).

Plaintiff alleges he “entered into an agreement with

Defendants MortgageIT, Padua, Wong, whereby Defendants promised to

provide Plaintiff with an affordable loan” and they breached the

agreement by “failing to provide Plaintiff with an affordable loan.” 

(Compl. ¶ 118.) However, earlier in his complaint, Plaintiff alleges

that it was Defendant Padua who told him that “he could get him the

best deal and the best interest rates” and that if the loan became

unaffordable, it could be refinanced. (Id. ¶¶ 24, 28.) Plaintiff,

therefore, has not alleged that these oral promises made by Padua were

incorporated into his loan agreement with MortgageIT or that

MortgageIT was aware of or agreed to those terms. Plaintiff,

therefore, has not demonstrated that his loan agreement with

MortgageIT included the promises that were allegedly breached. 

Accordingly, Plaintiff’s breach of contract claim against MortgageIT

cannot survive MortgageIT’s dismissal motion. See Logan v. Resmae

Mortg. Corp., No. 2:09-cv-016132-MCE-GGH, 2009 WL 5206716, at *4 (E.D.

Cal. Dec. 24, 2009)(dismissing breach of contract claim with same

allegations).

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

MortgageIT argues Plaintiff’s claim for breach of the

implied covenant of good faith and fair dealing should be dismissed

since “it is nothing more than an improper effort to impose a

fiduciary duty where none exists.” (MortgageIT MTD 18:2-3.) 

MortgageIT further argues that the alleged breaches concern “precontract” statements and disclosures which are not actionable under a

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

dealing. (MortgageIT MTD 9-10.) Plaintiff rejoins his allegations

demonstrate “MortgageIT is guilty of not dealing in good faith.” 

(Opp’n to MortgageIT MTD 21.)

“Generally, 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,

799 (2008)(quotations and citations omitted). “[T]he implied covenant

operates to protect the express covenants or promises of [a] contract. 

In essence, the covenant is implied as a supplement to the express

contractual covenants, to prevent a contracting party from engaging in

conduct which (while not technically transgressing the express

covenants) frustrates the other party’s rights to the benefits of the

contract.” Id. at 806 (quotations and citations omitted)(emphasis in

original). Therefore, the implied covenant “cannot impose substantive

duties or limits on the contracting parties beyond those incorporated

in the specific terms of [the parties] agreement.” Id. 

Under California law, “no cause of action for the tortious

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

arise unless the parties are in a ‘special relationship’ with

‘fiduciary characteristics.’” Pension Trust Fund v. Federal Ins. Co.,

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307 F.3d 944, 955 (9th Cir. 2002)(applying California law)(citing

Mitsui Mfrs. Bank v. Superior Court, 212 Cal. App. 3d 726, 730

(1989)). “A central test of whether a lender is subject to this tort

is whether there is a fiduciary relationship in which the financial

dependence or personal security by the damaged party has been

entrusted to the other.” Id. (quotations and citations omitted). 

Further, the implied covenant “does not require parties to negotiate

in good faith prior to any agreement.” McClain, 159 Cal. App. 4th at

799.

Plaintiff’s complaint alleges “a duty of good faith and fair

dealing was implied by law into the contract at issue in this action”

and “Defendants . . . breached the duty of good faith and fair dealing

by: (a) [f]ailing to pay at least as much regard to Plaintiff’s

interests as to Defendants’ interests; (b) failing to disclose to

Plaintiff the true nature of the loan that is the subject of this

action; [and] (c) failing to give Plaintiff the requisite notice and

disclosures.” (Compl. ¶¶ 122-23.)

Plaintiff’s claim, however, fails since he has not alleged

what contract forms the basis of his claim; nor has he identified any

express provision which has been frustrated by MortgageIT’s conduct. 

Further, Plaintiff has not alleged the existence of any “special

relationship” between him and MortgageIT to invoke the implied

covenant. Lastly, to the extent Plaintiff’s claim is based upon

conduct occurring during pre-contract negotiations, the implied

covenant does not apply. Therefore, Plaintiff’s claim for breach of

the implied covenant of good faith and fair dealing against MortgageIT

is dismissed.

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I. California Business & Professions Code § 17200

Lastly, both MortgageIT and MERS argue Plaintiff’s claim

under California Business & Professions Code § 17200 et seq. (the

“UCL”) should be dismissed. MortgageIT argues Plaintiff’s claim is

deficient since it is premised upon his other claims, none of which

state a viable claim. (MortgageIT MTD 15:19-24.) MERS argues

Plaintiff’s UCL claim is vague and conclusory and does not give MERS

fair notice of the basis upon which it is being sued. (MERS MTD 6:20-

7:9.) Plaintiff argues his UCL claim is sufficient since he has

alleged “multiple violations . . . of specific statutory and common

law provisions under federal and state laws . . . .” (Opp’n to

MortgageIT MTD 18:17-20.)

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).

Plaintiff alleges “Defendants acts alleged [in the

complaint] constitute unlawful, unfair, and /or fraudulent business

practices, as defined” under the UCL. (Compl. ¶ 111.) Further,

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Plaintiff alleges “[a]s a result of Defendants’ wrongful conduct,

Plaintiff has suffered various injuries according to proof at trial.”

(Id. ¶ 112.)

Plaintiff’s UCL claims against MortgageIT and MERS are

deficient. First, Plaintiff’s claim is vague and conclusory and he

fails to state any supporting facts. Plaintiff has neither

differentiated between the conduct of MortgageIT and MERS; nor has he 

identified a specific practice of either Defendant that he contends is

“unfair” or “fraudulent.” Plaintiff’s allegations, therefore, lack

the “reasonable particularity” that is required to state a claim under

the UCL. Second, Plaintiff’s UCL claim is entirely premised upon the

other claims he alleges in his complaint, all of which fall to state a

claim. Since none of his other claims are viable, by necessity, his

UCL claim must also fail. Therefore, Plaintiff’s UCL claims against

MortgageIT and MERS are dismissed.

IV. CONCLUSION

For the stated reasons, MortgageIT and MERS’ motions to

dismiss are GRANTED and Plaintiff’s complaint is DISMISSED. Since all

claims against MortgageIT are dismissed, MortgageIT’s motion to strike

is DENIED as MOOT. Plaintiff, however, is granted leave to amend any

claim that has not been dismissed with prejudice. Any amended

pleading shall be filed within fourteen (14) days of the date on which

this order is filed.

Dated: January 29, 2010

 

GARLAND E. BURRELL, JR.

United States District Judge

 

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