Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-cv-02884/USCOURTS-casd-3_09-cv-02884-2/pdf.json

Nature of Suit Code: 371
Nature of Suit: Truth in Lending
Cause of Action: 15:1601 Truth in Lending

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 Defendant J.P. Morgan Chase Bank, N.A. asserts it was erroneously sued as J.P.

Morgan Chase National Corporate Services, Inc. 

09cv2884

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

JAMES SORRELS and JODI SORRELS,,

Plaintiffs,

v.

J.P. MORGAN CHASE NATIONAL

CORPORATE SERVICES, INC, et al.,

Defendants.

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Civil No. 09cv2884 L(WMc)

ORDER GRANTING

DEFENDANTS’ MOTION TO

DISMISS [doc. #14] and GRANTING

LEAVE TO AMEND

Defendants J.P. Morgan Chase Bank, N.A.1

 and EMC Mortgage Corporation

(“defendants”) move to dismiss plaintiffs’ complaint. The motion has been fully briefed and

considered without oral argument.

A. Background

On March 13, 2007, plaintiffs signed their final loan documents with Equipoint Financial

Network, Inc. (“Equipoint”) that served to refinance their residential property. Plaintiffs received

a letter dated May 1, 2007, from Equipoint that indicated EMC Mortgage Corporation (“EMC”)

would begin serving the loan on June 1, 2007. When reviewing the first EMC statement dated

May 7, 2007, plaintiffs noted that the interest rate on the loan was incorrect. Plaintiffs allege

they neither agreed to the higher interest rate nor signed any documents reflecting this change. In

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28 2 Defendant Equipoint has been dismissed with prejudice from this action.

2 09cv2884

response to the allegedly erroneous statement, plaintiffs sought documents from EMC. The

documents EMC provided to plaintiffs with the higher interest rates indicated are dated April 24,

2007, and appear to contain plaintiffs’ signatures but plaintiffs assert they are forgeries because

they only signed one set of documents on March 13, 2007. In the complaint, plaintiffs allege,

inter alia, on information and belief, that all of the defendants intentionally and knowingly

forged plaintiffs signatures on the new documents in a conspiracy to defraud the plaintiffs.

(Compl., ¶34.) Plaintiffs also allege on information and belief, “JPMorgan is the beneficiary

and/or assignor [sic] of the Deed of Trust” and “EMC is servicer and/or beneficiary and/or

assignee of Deed of Trust . . . .” (Compl., ¶¶ 2, 3.) 

Plaintiffs filed the present complaint on December 23, 2009, against defendants2

 alleging

the following causes of action: violation of the Truth in Lending Act, breach of written contract,

breach of the implied covenant of good faith and fair dealing, negligence, fraud, conspiracy to

defraud, forgery, unjust enrichment, and negligent misrepresentation. The complaint also seeks

declaratory judgment and rescission/cancellation of the current mortgage loan.

B. Legal Standard

A plaintiff must “plead a short and plain statement of the claim showing that the pleader

is entitled to relief.” FED. R. CIV. P. 8(a)(2). This statement must be sufficient to “give the

defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.” Conley

v. Gibson, 355 U.S. 41, 47 (1957). Rule 12(b)(6) provides that a complaint may be dismissed for

“failure to state a claim upon which relief may be granted.” FED. R. CIV. P. 12(b)(6). A

complaint may be dismissed as a matter of law if it lacks a cognizable legal theory or states

insufficient facts under a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749

F.2d 530, 534 (9th Cir.1984).

The factual allegations of a complaint must be “enough to raise a right to relief above the

speculative level.” Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1965 (2007). A plaintiff

must plead more than conclusory allegations to show “plausible liability” and avoid dismissal.

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Id. at 1966 n. 5. The pleading standard of Rule 8 “demands more than an unadorned,

the-defendant-unlawfully-harmed-me accusation” and a complaint does not suffice “if it tenders

‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Ashcroft v. Iqbal, 129 S. Ct. 1937,

1949 (2009) (quoting Twombly, 127 S. Ct. at 1966). 

In determining the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond

the complaint for additional facts, e.g., facts presented in plaintiff’s memorandum in opposition

to a defendant’s motion to dismiss or other submissions. United States v. Ritchie, 342 F.3d 903,

908 (9th Cir. 2003); Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th Cir. 1998); see also 2 

MOORE’S FEDERAL PRACTICE, § 12.34[2] (Matthew Bender 3d ed.) ("The court may not . . . take

into account additional facts asserted in a memorandum opposing the motion to dismiss, because

such memoranda do not constitute pleadings under Rule 7(a)."). 

A court may, however, consider items of which it can take judicial notice without

converting the motion to dismiss into one for summary judgment. Barron v. Reich, 13 F.3d

1370, 1377 (9th Cir. 1994). Judicial notice may be taken of facts "not subject to reasonable

dispute" because they are 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. Additionally, a court may take

judicial notice of "‘matters of public record’ without converting a motion to dismiss into a

motion for summary judgment.’" Lee v. City of Los Angeles, 250 F.3d 668, 689 (9th Cir. 2001)

(quoting MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986)). Under the

incorporation by reference doctrine, courts may also consider documents "whose contents are

alleged in a complaint and whose authenticity no party questions, but which are not physically

attached to the [plaintiff’s] pleading." In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 986

(9th Cir.1999) (quoting Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994) (alteration in

original)); see also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).

/ / /

/ / /

/ / /

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C. Discussion

1. TILA

a. Liability Under TILA

Liability under TILA applies to creditors and their assignees. See 15 U.S.C. §§ 1640,

1641. Loan servicers cannot be held liable under TILA unless they owned the loan obligation at

some point. 15 U.S.C. § 1641(f)(1) (“A servicer of a consumer obligation arising from a

consumer credit transaction shall not be treated as an assignee of such obligation for purposes of

this section unless the servicer is or was the owner of the obligation.”); see also Mulato v. WMC

Mortg. Corp., 2009 WL 3561536 *6 (N.D. Cal., Oct. 27, 2009) (“As a loan servicer that has not

been alleged to own Plaintiff's mortgage notes, Chase cannot be held liable for TILA

violations.”). 

As noted above, plaintiffs allege that JP Morgan and EMC are the beneficiary or assignee

of the Deed of Trust, with EMC also acting as the loan servicer. Both defendants assert that

neither has ever had any interest in the loan or Deed of Trust as demonstrated by the recorded

instruments. (Reply at 2.) The Court cannot consider defendants’ own representations at the

motion to dismiss stage. 

In their complaint, plaintiffs point to Exhibit G as forming the basis for their assertion that

Bear Stearns and ultimately JP Morgan owned the note. Exhibit G is the first statement plaintiffs

received from EMC dated May 7, 2007. Because Exhibit G is attached to the complaint, the

Court may consider it as incorporated into the complaint. The May 7, 2007 Statement includes a

small, set off section entitled “Important Messages” and states “Why wait? Start saving today

with a Bear Stearns Residential Mortgage Refinance. Call us at 1-866-658-BEAR today!” (Exh.

G to the l. (emphasis in original)) This statement cannot be read as anything other than an

advertisement or solicitation for business. It does not suggest or imply that plaintiffs’ loan with

Equipoint had been transferred, sold or assigned to Bear Stearns. To suggest otherwise is

implausible. Plaintiffs cannot reasonably argue that at the time of filing the complaint JP Morgan

and EMC were the owners of the obligation based upon Exhibit G.

Although the Court accepts all allegations of material fact in the complaint as true and

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construes them in the light most favorable to the non-moving party, the Court is “not required to

accept as true conclusory allegations which are contradicted by documents referred to in the

complaint,” and does “not ... necessarily assume the truth of legal conclusions merely because

they are cast in the form of factual allegations.” Warren v. Fox Family Worldwide, Inc., 328 F.3d

1136, 1139 (9th Cir. 2003) (citations and quotation marks omitted). Further, Rule 11(b) requires

that reasonable inquiry be made prior to the filing of a complaint, and only those factual

allegations that have evidentiary support or are likely to have evidentiary support should be

included. Here, plaintiffs would have known that the EMC May 7, 2007 Statement was not a

notice of assignment or sale of their loan to Bear Stearns. 

In their opposition to defendants’ motion, plaintiffs contend they need to perform

discovery to determine whether EMC and JP Morgan were the assignees or purchasers of the

loan. (Opp. at 3.) But an attorney certifies when presenting a pleading that a reasonable inquiry

has already occurred with respect to factual contentions such as who the holder of the note is.

Exhibit G does not provide a reasonable basis for the challenged position that Bear Stearn and

subsequently JP Morgan is the owner of the obligation. Accordingly, defendants’ motion to

dismiss the TILA cause of action against JP Morgan and EMC based on the alleged assignment

of the loan is granted. The claim is dismissed without prejudice because it is not absolutely clear

from the pleadings that given the opportunity they cannot show EMC and JP Morgan were

assignees of the note from Equipoint, the originating lender. See In re Daou Systems, Inc., 411

F.3d 1006, 1013 (9th Cir.2005) (explaining that dismissal for failure to state a claim is generally

without prejudice, unless it is clear the complaint could not be saved by amendment). Plaintiffs

must however meet the requirements of Rule 11 if they intend to go forward with this action

against these defendants. 

b. Statute of Limitation for Damages Under TILA

 Even if plaintiffs have properly brought a TILA claim against defendants, a plaintiff’s

cause of action for damages under TILA is subject to a one-year statute of limitations, 15 U.S.C.

§ 1640(e), which runs from the time the loan transaction is consummated. King v. State of

California, 784 F.2d 910, 915 (1986). Plaintiffs allege they closed on the loan on March 13,

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2007. By bringing this action on December 23, 2009, plaintiffs TILA damages claim is time

barred.

Even if plaintiffs’ claim did not arise until May 7, 2007, the date they received the first

statement for the loan from EMC that plaintiffs contend erroneously stated the interest rate on

the loan, the principle balance and the minimum payment on the loan, the one-year limitation

period has long expired. 

But the Ninth Circuit has held equitable tolling of civil damages claims brought under

TILA may be appropriate "in certain circumstances" such as when a borrower might not have

had a reasonable opportunity to discover the nondisclosures within the one-year period. King v.

State of California, 784 F.2d 910, 915 (9th Cir. 1986); Nava v. VirtualBank, 2008 WL 2873406

at *3 (E.D. Cal. 2008). Courts have discretion to "adjust the limitations period accordingly." Id.

Depending on the facts of the transaction, certain disclosures might not have been discovered

within the one-year time period.

Although damage claims may be susceptible to equitable tolling, plaintiffs do not plead

facts supporting application of tolling. Plaintiffs’ allegations do not explain how they were

prevented from discovering, in the exercise of reasonable diligence, the information necessary to

bring their damages claims within the one-year limitations period. See, e.g., Meyer v. Ameriquest

Mortgage Co., 342 F.3d 899, 902 (9th Cir.2003); Lingad v. Indymac Fed. Bank, 682 F.Supp.2d

1142, 1147 (E.D. Cal.2010) (rejecting equitable tolling at pleading stage when “plaintiff fails to

allege any facts demonstrating that the TILA violations alleged could not have been discovered

by due diligence”) (citing Meyer ). Indeed, plaintiffs’ assertion that they knew on May 7, 2007

that the interest rate was incorrect works against the application of equitable tolling. Thus,

plaintiffs’ claim for damages under TILA will be dismissed. 

c. Tender for Rescission Claim under TILA

Assuming the timely filing of the complaint provides notice to the creditors and/or

assignees of the intent to rescind the transaction, the Court has discretion to require plaintiffs to

plead their ability to tender in order to maintain a rescission claim under TILA. See Yamamoto v.

Bank of New York, 328 F.3d 1167, 1173 (9th Cir. 2003). Requiring a plaintiff to “allege either

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the present ability to tender the loan proceeds or the expectation that they will be able to tender

within a reasonable time” is appropriate because “[i]t makes little sense to let the instant

rescission claim proceed absent some indication that the claim will not simply be dismissed at

the summary judgment stage after needless depletion of the parties' and the Court's resources.”

Romero v. Countrywide Bank, N.A., 2010 WL 2985539 (N.D. Cal. July 27, 2010); see also

Garza v. American Home Mortgage, 2009 WL 188604 at *5 (E.D. Cal. January 27, 2009).

Here plaintiffs have failed to allege any facts relating to their ability to tender the loan

proceeds, or that they in fact ever tendered the loan proceeds. The TILA rescission claim will be

dismissed without prejudice on this basis.

2. Breach of Contract and Breach of the Implied Covenant of Good Faith and

Fair Dealing

As discussed above, plaintiffs have not alleged any contractual relationship between

themselves and EMC and/or JP Morgan which is a necessary prerequisite to a breach of contract

or breach of the implied covenant of good faith and fair dealing claim. Accordingly, these causes

of action will be dismissed without prejudice.

3. Negligence

Under California Code of Civil Procedure 335.1, an action for negligence must be

brought within two years. Because this action was brought more than two years after the cause

of action accrued, it must be dismissed.

Further, neither EMC nor JP Morgan owe a duty of care to plaintiffs because neither was

involved with the origination of plaintiffs’ loan. But even if defendants were lenders by

assignment of the note, a financial institution does not owe a duty of care to a borrower “when

the institution’s involvement in the loan transaction does not exceed the scope of its

conventional role as a mere lender of money.” Nymark v. Heart Federal Savungs and Loan

Assn., 231Cal. App.3d 1089, 1096 (1991). Plaintiffs have provided no facts to suggest anything

other than the existence of a conventional lender relationship.

4. Fraud and Negligent Misrepresentation

Defendants contend that the plaintiffs’ fraud and negligent misrepresentation claims fail

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to meet pleading standard of Rule 9(b) of the Federal Rules of Civil Procedure. The Court

concurs. 

Rule 9(b) requires that “circumstances constituting fraud or mistake . . . be stated with

particularity.” FED. R. CIV. P. 9(b). A plaintiff asserting fraud must allege facts supporting the

following elements: (1) a misrepresentation, (2) knowledge of falsity (or scienter), (3) intent to

defraud, i.e., to induce reliance, (4) justifiable reliance, and (5) resulting damage. In re Estate of

Young, 160 Cal. App.4th 62, 79 (2008) (quoting Lazar v. Superior Court, 12 Cal.4th 631, 638

(1996)). In order to satisfy Rule 9(b)'s particularity requirement, a plaintiff must state “the time,

place and specific content of the false representations as well as the identities of the parties to the

misrepresentation.” Alan Neuman Prods., Inc. v. Albright, 862 F.2d 1388, 1393 (9th Cir. 1988).

When a plaintiff alleges fraud against multiple defendants, he or she “must provide each and

every defendant with enough information to enable them ‘to know what misrepresentations are

attributable to them and what fraudulent conduct they are charged with.’” Pegasus Holdings v.

Veterinary Centers of America, Inc., 38 F. Supp.2d 1158, 1163 (C.D. Cal.1998) (quoting In re

Worlds of Wonder Sec. Litig., 694 F. Supp. 1427, 1433 (N.D. Cal. 1998)). “Rule 9(b) does not

allow a complaint to merely lump multiple defendants together but require[s] plaintiffs to

differentiate their allegations when suing more than one defendant ... and inform each defendant

separately of the allegations surrounding his alleged participation in the fraud.” Swartz v. KPMG

LLP, 476 F.3d 756, 764-65 (9th Cir. 2007) (internal quotations omitted).

Plaintiffs' complaint falls far short of providing the allegations necessary for stating a

fraud claim. Neither defendant is alleged to have provided a misstatement or omitted information

during the origination of the loan or at any time thereafter. Further, plaintiffs fail to allege any

facts demonstrating the requisite state of mind for fraud. The fraud and negligent

misrepresentation claims will be dismissed without prejudice.

5. Conspiracy to Defraud

Plaintiffs state that defendants “entered into a conspiracy and agreement to defraud

Plaintiffs” and “rel[ied] on Defendants [sic] misrepresentations . . . . (Compl., ¶¶ 75, 76 .) Other

than this assertion, plaintiffs have failed to provide any facts that would show plausible liability

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with respect to the formation and operation of a conspiracy. Accordingly, this claim must also be

dismissed without prejudice.

6. Forgery Under California Code of Civil Procedure § 749(a) 

Plaintiffs allege that all the defendants forged the Deed of Trust as part of a conspiracy to

defraud the plaintiffs. This “naked assertion” fails to meet the pleading standard of Rule 8 and

consequently, Rule 12(b)(6). Iqbal, 129 S. Ct. at 1949.

7. Unjust Enrichment

Like plaintiffs’ other claims, plaintiffs’ allegations concerning unjust enrichment fail to

provide facts showing that plaintiffs are entitled to relief. The conclusory allegations plaintiffs’

provide do not show “plausible liability” with respect to this claim and it will be dismissed

without prejudice. Twombly, 127 S. Ct. at 1965.

8. Declaratory Judgment

Plaintiffs seek declaratory relief pursuant to 28 U.S.C. § 2201. Under 28 U.S.C. § 2201,

“any court of the United States, upon the filing of an appropriate pleading, may declare the rights

and other legal relations of any interested party seeking such declaration, whether or not further

relief is or could be sought.” Declaratory relief, however, may be unnecessary where an

adequate remedy exists under some other cause of action. See Mangindin v. Wash. Mut. Bank,

637 F.Supp.2d 700, 707 (N.D. Cal.2009). A claim for declaratory relief “rises or falls with [the]

other claims.” See Surf & Sand, LLC v. City of Capitola, 2008 WL 2225684, at *2 n. 5 (N.D.

Cal. May 28, 2008). Plaintiffs' request for declaratory relief is redundant in the face of the other

causes of action, and it does not appear to be useful in clarifying the legal relations between the

parties. Because plaintiffs have not alleged any causes of action that would support declaratory

relief, the Court will dismiss this claim.

9. Rescission/Cancellation Under California Civil Code § 1689

Under California law, "[i]n obtaining rescission or cancellation, the rule is that the

complainant is required to do equity, as a condition to his obtaining relief, by restoring to the

defendant everything of value which the plaintiff has received in the transaction." Fleming v.

Kagan, 11 Cal.Rptr. 737, 740 (Ct. App.1961); see also Karlsen v. Am. Sav. & Loan Assn., 92

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Cal.Rptr. 851, 854 (Ct. App. 1971) ("A valid and viable tender of payment of the indebtedness

owing is essential to an action to cancel a voidable sale under a deed of trust.") "The rule applies

although the plaintiff was induced to enter into the contract by the fraudulent representations of

the defendant." Fleming, 11 Cal. Rptr. at 740.

As noted above, plaintiffs have not alleged their ability to tender payment of the loan or

that they have tendered the loan proceeds. Accordingly, this cause of action will be dismissed

without prejudice.

D. Leave to Amend the Complaint

Plaintiffs' complaint will be dismissed in its entirety; however, they will be granted leave

to file an amended complaint as to all claims. Counsel is reminded, however, that “Rule 11

authorizes a court to impose a sanction on any attorney, law firm, or party that brings a claim for

an improper purpose or without support in law or evidence.” Sneller v. City of Bainbridge

Island, 606 F.3d 636, 638-39 (9th Cir. 2010). Under Rule 11, “the attorney has a duty prior to

filing a complaint not only to conduct a reasonable factual investigation, but also to perform

adequate legal research that confirms whether the theoretical underpinnings of the complaint are

warranted by existing law or a good faith argument for an extension, modification or reversal of

existing law. One of the fundamental purposes of Rule 11 is to reduce frivolous claims, defenses

or motions and to deter costly meritless maneuvers, thereby avoiding delay and unnecessary

expense in litigation.” Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th Cir.2002) (quotation

and citations omitted).

E. Conclusion

Based on the foregoing, IT IS ORDERED:

1. Defendants JP Morgan and EMC’s motion to dismiss is GRANTED without

prejudice; and

/ / /

/ / /

/ / /

/ / /

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2. Plaintiffs are GRANTED leave to file a First Amended Complaint. If plaintiffs

intend to file a FAC, they shall do so no later than February 28, 2011. 

IT IS SO ORDERED. 

DATED: February 14, 2011

M. James Lorenz

United States District Court Judge

COPY TO: 

HON. WILLIAM McCURINE, JR.

UNITED STATES MAGISTRATE JUDGE

ALL PARTIES/COUNSEL 

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