Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_09-cv-02059/USCOURTS-cand-3_09-cv-02059-4/pdf.json

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

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United 

States District 

Court 

For the Northern District of California 

IN THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF CALIFORNIA 

AYISHA BENHAM, 

 Plaintiff, 

 v. 

AURORA LOAN SERVICES; BNC 

MORTGAGE INC.; ROBERT E. WEISS, 

INC.; MORTGAGE ELECTRONIC 

REGISTRATION SYSTEMS, INC.; UNITED 

HOME MORTGAGE CORPORATION; ASAD 

ZAFARI; KEITH HOUSTEAD; and DOES 

1-20, inclusive, 

 

 Defendants. 

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Case No. 09-2059 SC 

ORDER GRANTING MOTIONS TO 

DISMISS 

I. INTRODUCTION

 This Court now considers a second round of motions to dismiss 

and motions to strike brought by Defendants Aurora Loan Services 

("Aurora") and Mortgage Electronic Registration Systems, Inc. 

("MERS;" collectively "Defendants")).1

 Docket Nos. 44 ("MERS 

MTD"), 45 ("MERS MTS"), 47 ("Aurora MTD"), 48 ("Aurora MTS"). This 

Court previously granted Defendants' motions to dismiss the claims 

brought against them by Plaintiff Ayisha Benham ("Plaintiff"). 

Docket Nos. 31 ("Sept. 1, 2009 Order"), 35 ("Sept. 30, 2009 

Order"). 

 Plaintiff submitted a Second Amended Complaint after this 

Court dismissed all claims against MERS and Aurora. Docket No. 40 

 

1

 No other named defendants have participated in these motions. 

Case 3:09-cv-02059-SC Document 59 Filed 02/09/10 Page 1 of 10
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United 

States District 

Court

For the Northern District of California 

("SAC"). MERS brought its latest motions on November 10, 2009, and 

Aurora brought its motions on November 19, 2009. Both Defendants 

received hearing dates of January 22, 2010. The deadline for 

Plaintiff to respond therefore passed on January 1. Civ. L.R. 7-

3(a). Plaintiff submitted no opposition to Aurora's motions. 

Having considered the unopposed motions submitted by Aurora, the 

Court concludes that dismissal of all claims against Aurora is 

appropriate, and hereby GRANTS Aurora's Motion to Dismiss. This is 

the second dismissal of the claims against Aurora. All causes of 

action in the SAC are therefore DISMISSED WITH PREJUDICE as to 

Aurora. Aurora's Motion to Strike is DENIED as moot. 

 Plaintiff did not file an Opposition to MERS' motions until 

January 12, 2010, nearly two weeks after her deadline, and after 

the deadline for MERS to submit a Reply. Docket Nos. 53 ("Opp'n re 

MERS MTS"), 54 ("Opp'n re MERS MTD"); see Civ. L.R. 7-3(b). 

Plaintiff proffered no explanation for this late filing. This 

Court need not consider Plaintiff's late-filed opposition papers, 

and having considered the papers submitted by MERS, it GRANTS MERS' 

Motion to Dismiss. As discussed below, even if this Court were to 

consider Plaintiff's Opposition, it would not change the outcome of 

this determination. This is the second dismissal of the claims 

against MERS. All causes of action in the SAC are therefore 

DISMISSED WITH PREJUDICE as to MERS. MERS' Motion to Strike is 

DENIED as moot. 

II. DISCUSSION

 This Court has set out both the relevant background for this 

dispute, and the applicable legal standards governing motions to 

Case 3:09-cv-02059-SC Document 59 Filed 02/09/10 Page 2 of 10
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United 

States District 

Court

For the Northern District of California 

dismiss, in its prior orders. See Sept. 1, 2009 Order at 2-4; 

Sept. 30, 2009 Order at 2-5. The Court now restricts its 

discussion solely to the causes of action asserted against MERS, 

which Plaintiff sought to support in her belatedly submitted 

Opposition. As Aurora's Motion to Dismiss is unopposed, this Court 

does not provide additional discussion of the causes of action 

asserted against Aurora. 

A. Negligence

 Plaintiff alleges that MERS was negligent in the following 

way: 

Defendant MERS owed Plaintiff a duty to perform 

its administrative function[s] [of] recording, 

maintaining and transferring documents as it 

relates to Plaintiff's loan in a manner not to 

cause Plaintiff harm. Defendant MERS' actions 

directly targeted the Plaintiff and the harm to 

Plaintiff was foreseeable by Defendant MERS. 

When this loan was initiated, harm to the 

Plaintiff was a certainty and directly connected 

to Defendant MERS' concealment of the loan 

transfers. Defendant MERS breached its duty to 

Plaintiff when it failed to receive, maintain or 

transfer the negotiable instrument related to 

Plaintiff's loan, communicated false information 

to others regarding Plaintiff's loan, and 

authorized others to collect payments on 

Plaintiff's mortgage and commence foreclosure 

proceedings. 

SAC ¶ 104. 

 This Court is not persuaded that MERS owed a duty to Plaintiff 

as a mortgagee. See Hardy v Indymac Federal Bank, -- F.R.D. -- , 

No. 09-935, 2009 U.S. Dist. LEXIS 84566, *19-20 (E.D. Cal. Sept. 

15, 2009) ("MERS, as nominee beneficiary, is more similar to the 

lending institution or trustee than mortgage broker. Accordingly, 

absent an assumption of duty or special relationship, MERS owed no 

duty of care to [the mortgagee]."). Even assuming, arguendo, that 

Case 3:09-cv-02059-SC Document 59 Filed 02/09/10 Page 3 of 10
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United 

States District 

Court

For the Northern District of California 

such a duty existed, this Court is not persuaded that MERS violated 

that duty. As beneficiary under the Deed of Trust, MERS was free 

to make a substitution of the trustee in order to conduct the 

foreclosure sale. See Cal. Civ. Code §§ 2934a, 2924b(b)(4); 

Kachlon v. Markowitz, 168 Cal. App. 4th 316, 334 (Ct. App. 2008). 

 Plaintiff claims that MERS "breached its duty to Plaintiff 

when it failed to receive, maintain or transfer the negotiable 

instrument related to Plaintiff's loan . . . ." SAC ¶ 104. In her 

Opposition, Plaintiff explains that this alleged breach occurred 

when "MERS failed to follow the basic legal requirements for the 

transfer of a negotiable instrument and an interest in real 

property, including, failing to obtain written assignments of the 

note and deed of trust, delivery of the note and deed of trust, or 

endorsements of the note by the owner of the note." Opp'n re MERS 

MTD at 10-11. In particular, Plaintiff alleges that MERS failed to 

comply with California Corporations Code section 191(c)(7) and 

California Commercial Code sections 1201(21), 3301, and 3309. 

 Plaintiff's claims with respect to California Corporation's 

code section 191(c)(7)2

 relate to Plaintiff's repeated allegations, 

throughout the SAC and Opposition, that MERS is not registered to 

do business in California. The Court has already rejected this 

argument in this case. See Sept. 1, 2009 Order at 10-11. 

Plaintiff is now alleging that MERS violated the law by exceeding 

the scope of an exception to California's registration 

requirements, embodied by section 191(c)(7). Assuming that this is 

 

2

 Section 191(c)(7) creates an exception to the definition of 

"intrastate business," such that foreign corporations need not 

register with the California Secretary of State to "[c]reat[e] 

evidences of debt or mortgages, liens or security interests on real 

or personal property." Cal. Corp. Code § 191(c)(7). 

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United 

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For the Northern District of California 

true, Plaintiff completely fails to explain how this violation 

actually caused Plaintiff harm. The SAC does nothing to suggest 

that Plaintiff would not have suffered a foreclosure if MERS had 

been registered with the California Secretary of State, or had not 

participated in the transactions leading up to the foreclosure. 

Plaintiff does not explain how MERS' alleged failure contributed to 

any harm that she suffered. This allegation fails as a claim for 

negligence. 

 Plaintiff's allegations with respect to sections 1201(21), 

3301, and 3309 of the California Commercial Code relate to 

Plaintiff's repeated arguments that only an entity in possession of 

a promissory note ("a holder in due course") has a right to 

enforce that promissory note. See, e.g., SAC ¶ 14. This argument 

is legally incorrect. Sections 3301 and 3309 do limit the right to 

enforce most negotiable instruments to the note holder.3 Cal. Com. 

Code § 3301, 3309. However, these general statutes do not govern 

nonjudicial foreclosure sales. As a California Court of Appeal has 

explained: 

The comprehensive statutory framework established 

to govern nonjudicial foreclosure sales is 

intended to be exhaustive. It includes a myriad 

of rules relating to notice and right to cure. It 

would be inconsistent with the comprehensive and 

exhaustive statutory scheme regulating 

nonjudicial foreclosures to incorporate another 

unrelated cure provision into statutory 

nonjudicial foreclosure proceedings. 

Moeller v. Lien, 25 Cal. App. 4th 822, 834 (Ct. App. 1994). 

 Contemporary case law addressing this issue is clear: "Under 

Civil Code section 2924, no party needs to physically possess the 

 

3

 Section 1201(21) simply defines "holder." Cal. Com. Code 

§ 1201(21). 

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United 

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Court

For the Northern District of California 

promissory note." Sicairos v. NDEX West, LLC, 2009 U.S. Dist. 

LEXIS 11223, *(S.D. Cal. 2009) (citing Cal. Civ. Code, 

§ 2924(a)(1)); see also Coyotzi, 2009 U.S. Dist. LEXIS 91084 at 

*53-54 (same); Lomboy v. SCME Mortgage Bankers, No. 09-1160, 2009 

U.S. Dist. LEXIS 44158, * 12-13 (N.D. Cal. May 26, 2009) ("Under 

California law, a trustee need not possess a note in order to 

initiate foreclosure under a deed of trust."). This argument 

therefore fails as a claim for negligence. Once the SAC is 

stripped from its incorrect legal conclusions regarding the power 

of the various defendants to foreclose upon Plaintiff's property, 

it is not clear how MERS could have negligently harmed Plaintiff by 

"communicat[ing] false information to others regarding Plaintiff's 

loan" or "authoriz[ing] others to collect payments on Plaintiff's 

mortgage and commence foreclosure proceedings." 

 Plaintiff also suggests that MERS had no capacity to assert or 

transfer any rights in this case, because it is governed by the 

"MERS Terms and Conditions." SAC ¶ 13. Plaintiff provides no 

context whatsoever for this legal conclusion. She does not explain 

what the "MERS Terms and Conditions" are, whether they represent a 

binding contract or with whom, how they apply to her transaction, 

or whether she has standing to assert them against MERS. Plaintiff 

simply quotes a portion of the language from this mysterious 

document, which states that "MERS shall have no rights whatsoever 

to any payments made on account of such mortgage loans, to any 

servicing rights related to such mortgage loans, or to any 

mortgaged properties securing such mortgage loans." Id. Even 

assuming that the "MERS Terms and Conditions" are part of a binding 

document, Plaintiff does not explain how MERS breached these terms 

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United 

States District 

Court

For the Northern District of California 

by acting in its limited role as beneficiary under the Deed of 

Trust. The "MERS Terms and Conditions" also states that "MERS 

agrees not to assert any rights (other than rights specified in the 

Governing Documents) . . . ." Id. This expansive language, with 

an equally expansive exception, does little or nothing to support 

Plaintiff's claim that MERS has exceeded the scope of its rights in 

a way that has harmed Plaintiff. Plaintiff simply provides 

insufficient information to conclude that MERS committed negligence 

or wrongdoing by violating the "MERS Terms and Conditions" in a way 

that gives rise to a colorable cause of action by Plaintiff, either 

in tort or in contract. 

B. Fraud

 The Court finds that Plaintiff still has not sufficiently pled 

fraud against MERS with the specificity required by Rule 9(b) of 

the Federal Rules of Civil Procedure. Plaintiff still does not 

explain how the activity of assigning mortgage loans to a trust 

pool gives rise to a fraud claim against MERS, particularly given 

the fact that the Deed of Trust specifically states that it may be 

"sold one or more times without prior notice to Borrower." Deed of 

Trust4

 at 11. 

 More specifically, the Court notes that Plaintiff does not 

allege any particular statement made by MERS to Plaintiff that was 

in fact false or fraudulent. Plaintiff only states that MERS 

"misrepresented to Plaintiff on the Deed of Trust that it is a 

qualified beneficiary with the ability to assign or transfer the 

 

4

 The Court previously took judicial notice of the Deed of Trust, 

which was attached as Exhibit 1 to the Request for Judicial Notice 

submitted by MERS in support of its first Motion to Dismiss. 

Docket No. 15. 

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United 

States District 

Court

For the Northern District of California 

Deed of Trust and/or the Note and/or substitute trustees under the 

Deed of Trust," and that "it followed the applicable legal 

requirements to transfer the Note and Deed of Trust to subsequent 

beneficiaries." SAC ¶ 135. These claims are only "false" if the 

Court accepts Plaintiff's legal conclusions, that only the one in 

possession of the note can transfer or enforce the note, or that 

MERS somehow breached the poorly-explained "MERS Terms and 

Conditions." As previously discussed, the Court does not accept 

these conclusions. 

 The Court also notes that Plaintiff alleges, in passing and 

without factual allegations sufficient to render the assertion 

plausible, that MERS executed a Corporate Assignment of Deed of 

Trust to Plaintiff's first mortgage at an unknown date before it 

was recorded on February 24, 2009, and then backdated it to August 

23, 2007. SAC ¶ 52. Aside from this bare conclusion, there is 

nothing in the SAC (or the Opposition) to render this allegation of 

backdating "plausible," rather than merely "conceivable." See

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1952 (2009). Plaintiff's 

pleadings are devoid of facts sufficient to give rise to a 

reasonable inference the document was backdated. The mere fact 

that the Corporate Assignment was not recorded until roughly 

eighteen months after the execution date does not, in itself, give 

rise to a presumption that the document was backdated, and 

Plaintiff has pointed to no requirement that the document be 

recorded within a certain time period after execution. Finally, 

even assuming that Plaintiff has sufficiently alleged that MERS 

backdated this document, Plaintiff fails to link this allegation 

with any particular cause of action, explain how it destroyed the 

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United 

States District 

Court

For the Northern District of California 

chain of title or otherwise legally derailed the foreclosure, or 

describe how she was harmed by it. 

C. California Business & Professions Code § 17200

 Plaintiff's final cause of action against MERS is based upon 

"MERS' negligence, fraud, and illegal foreclosure activities." SAC 

¶ 149. The Court has already rejected the allegations of 

negligence and fraud, and it notes that Plaintiff has failed to 

allege facts that plausibly connect MERS (which assigned away any 

rights and interest in the Deed of Trust well before foreclosure) 

with the illegal foreclosure activities alleged against other 

Defendants. 

 Plaintiff further repeats the allegation that MERS was not 

registered with California's Secretary of State in order to conduct 

business within the State of California by violating section 

191(d)(3) of the California Corporations Code. Id. This section 

exempts the following activity from the definition of "transacting 

intrastate business": "The ownership of any loans and the 

enforcement of any loans by trustee's sale, judicial process or 

deed in lieu of foreclosure or otherwise." Cal. Corp. Code 

§ 191(d)(3). Plaintiff does not explain precisely what MERS did to 

exceed the scope of the exceptions set out in section 191 of the 

California Corporations Code. 

III. CONCLUSION

 The Court GRANTS the Motion to Dismiss filed by Aurora Loan 

Services, which was unopposed by Plaintiff. Aurora Loan Service's 

Motion to Strike is DENIED as moot. 

 The Court GRANTS the Motion to Dismiss filed by Mortgage 

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United 

States District 

Court

For the Northern District of California 

Electronic Registration Systems, Inc., which was not timely opposed 

by Plaintiff. Mortgage Electronic Registration Systems, Inc.'s 

Motion to Strike is DENIED as moot. 

 All causes of action are DISMISSED WITH PREJUDICE as to 

Defendants Aurora Loan Services and Mortgage Electronic 

Registration Systems, Inc. 

IT IS SO ORDERED. 

Dated: February 9, 2010 

UNITED STATES DISTRICT JUDGE

Case 3:09-cv-02059-SC Document 59 Filed 02/09/10 Page 10 of 10